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Fear of Ruin

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  • Jérôme Foncel
  • Nicolas Treich

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Abstract

This paper offers interpretations and applications of the “fear of ruin” coefficient (Aumann and Kurz, 1977, Econometrica). This coefficient is useful for analyzing the behavior of expected utility maximizers when they face binary lotteries with the same worse outcome. Comparative statics results of “more fear of ruin” are derived. The partial ordering induced by the fear of ruin coefficient is shown to be weaker than that induced by the Arrow-Pratt coefficient. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11166-005-5104-8
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Bibliographic Info

Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 31 (2005)
Issue (Month): 3 (December)
Pages: 289-300

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Handle: RePEc:kap:jrisku:v:31:y:2005:i:3:p:289-300

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Web page: http://www.springerlink.com/link.asp?id=100299

Related research

Keywords: risk-aversion; expected utility; Arrow-Pratt coefficient; auctions; value-of-life;

References

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  1. Jones-Lee, M W, 1980. "Maximum Acceptable Physical Risk and a New Measure of Financial Risk-Aversion," Economic Journal, Royal Economic Society, vol. 90(359), pages 550-68, September.
  2. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-61, July.
  3. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 1-31, February.
  4. Eeckhoudt, Louis R & Hammitt, James K, 2001. " Background Risks and the Value of a Statistical Life," Journal of Risk and Uncertainty, Springer, vol. 23(3), pages 261-79, November.
  5. Peter Eso & Lucy White, 2001. "Precautionary Bidding in Auctions," Discussion Papers 1331, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Sherwin Rosen, . "The Value of Changes in Life Expectancy," University of Chicago - Population Research Center 87-14, Chicago - Population Research Center.
  7. Konrad, Kai A & Schlesinger, Harris, 1997. "Risk Aversion in Rent-Seeking and Rent-Augmenting Games," Economic Journal, Royal Economic Society, vol. 107(445), pages 1671-83, November.
  8. Roth, Alvin E & Rothblum, Uriel G, 1982. "Risk Aversion and Nash's Solution for Bargaining Games with Risky Outcomes," Econometrica, Econometric Society, vol. 50(3), pages 639-47, May.
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Citations

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Cited by:
  1. Martin Weitzman, 2007. "Structural Uncertainty and the Value of Statistical Life in the Economics of Catastrophic Climate Change," NBER Working Papers 13490, National Bureau of Economic Research, Inc.
  2. EECKHOUDT, Louis & PESTIEAU, Pierre, . "A note on longevity enhancing investment," CORE Discussion Papers RP -2129, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Bommier, Antoine & Chassagnon, Arnold & Le Grand, François, 2010. "Comparative Risk Aversion: A Formal Approach with Applications to Savings Behaviors," TSE Working Papers 10-141, Toulouse School of Economics (TSE).
  4. Chiappori, Pierre-André & Gandhi, Amit & Salanié, Bernard & Salanié, François, 2012. "From Aggregate Betting Data to Individual Risk Preferences," TSE Working Papers 13-453, Toulouse School of Economics (TSE).
  5. Adler, Matthew & Treich, Nicolas, 2014. "Consumption, Risk and Prioritarianism," TSE Working Papers 14-500, Toulouse School of Economics (TSE).
  6. David Crainich & Louis Eeckhoudt, 2008. "On the intensity of downside risk aversion," Journal of Risk and Uncertainty, Springer, vol. 36(3), pages 267-276, June.
  7. Simon Dietz, 2011. "High impact, low probability? An empirical analysis of risk in the economics of climate change," Climatic Change, Springer, vol. 108(3), pages 519-541, October.
  8. Christian Gollier & James Hammitt & Nicolas Treich, 2013. "Risk and choice: A research saga," Journal of Risk and Uncertainty, Springer, vol. 47(2), pages 129-145, October.
  9. James Hammitt, 2013. "Admissible utility functions for health, longevity, and wealth: integrating monetary and life-year measures," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 311-325, December.

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