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Representing risk preferences in expected utility based decision models

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  • Jack Meyer

Abstract

Users of expected utility based decision models frequently find it useful or necessary to specify a functional form that represents the risk preferences of a decision maker. Having additional functional forms from which to choose would be helpful. The literature so far has provided several such functional forms for the utility function itself. The discussion presented here indicates that providing a functional form for the marginal utility function is an alternate and equally useful way to represent risk preferences. Furthermore, functional forms for marginal utility are easier to provide, and there exist functional forms for marginal utility that represent simple risk preferences for which there is no associated functional form for the utility function. Several functional forms for marginal utility are suggested, and the class of isoelastic risk preferences is identified and discussed. Copyright Springer Science+Business Media, LLC 2010

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  • Jack Meyer, 2010. "Representing risk preferences in expected utility based decision models," Annals of Operations Research, Springer, vol. 176(1), pages 179-190, April.
    • Handle: RePEc:spr:annopr:v:176:y:2010:i:1:p:179-190:10.1007/s10479-008-0381-7
    DOI: 10.1007/s10479-008-0381-7
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    2. Donald Meyer & Jack Meyer, 2011. "A Diamond-Stiglitz approach to the demand for self-protection," Journal of Risk and Uncertainty, Springer, vol. 42(1), pages 45-60, February.
    3. Denis Conniffe, 2007. "The Generalised Extreme Value Distribution as Utility Function," The Economic and Social Review, Economic and Social Studies, vol. 38(3), pages 275-288.
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    5. Migali, Giuseppe, 2012. "Funding higher education and wage uncertainty: Income contingent loan versus mortgage loan," Economics of Education Review, Elsevier, vol. 31(6), pages 871-889.
    6. Danau, Daniel, 2020. "Prudence and preference for flexibility gain," European Journal of Operational Research, Elsevier, vol. 287(2), pages 776-785.
    7. Aurélien Baillon & Olivier L’Haridon, 2021. "Discrete Arrow–Pratt indexes for risk and uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(4), pages 1375-1393, November.
    8. Jeongseok Song & Doojin Ryu, 2018. "Aging effects on consumption risk-sharing channels in European countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(2), pages 585-617.
    9. Canales, Elizabeth & Bergtold, Jason S. & Williams, Jeffery & Peterson, Jeffrey, 2015. "Estimating farmers’ risk attitudes and risk premiums for the adoption of conservation practices under different contractual arrangements: A stated choice experiment," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205640, Agricultural and Applied Economics Association.
    10. Pramod C. Mane & Kapil Ahuja & Nagarajan Krishnamurthy, 2020. "Stability, efficiency, and contentedness of social storage networks," Annals of Operations Research, Springer, vol. 287(2), pages 811-842, April.
    11. Yosra Miaoui & Noureddine Boudriga, 0. "Enterprise security investment through time when facing different types of vulnerabilities," Information Systems Frontiers, Springer, vol. 0, pages 1-40.
    12. Georges Hübner & Thomas Lejeune, 2015. "Portfolio choice and investor preferences : A semi-parametric approach based on risk horizon," Working Paper Research 289, National Bank of Belgium.
    13. Wei Hu & Yongjian Li, 2012. "Retail service for mixed retail and E-tail channels," Annals of Operations Research, Springer, vol. 192(1), pages 151-171, January.
    14. Liqun Liu & Jack Meyer, 2012. "Decreasing absolute risk aversion, prudence and increased downside risk aversion," Journal of Risk and Uncertainty, Springer, vol. 44(3), pages 243-260, June.
    15. Yosra Miaoui & Noureddine Boudriga, 2019. "Enterprise security investment through time when facing different types of vulnerabilities," Information Systems Frontiers, Springer, vol. 21(2), pages 261-300, April.
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    18. Soumyatanu Mukherjee & Sidhartha S. Padhi, 2022. "Sourcing decision under interconnected risks: an application of mean–variance preferences approach," Annals of Operations Research, Springer, vol. 313(2), pages 1243-1268, June.
    19. Reichel, Lukas & Schmeiser, Hato & Schreiber, Florian, 2021. "Sometimes more, sometimes less: Prudence and the diversification of risky insurance coverage," European Journal of Operational Research, Elsevier, vol. 292(2), pages 770-783.

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