Putting Risk in its Proper Place
AbstractThis paper examines preferences towards particular classes of lottery pairs. We show how concepts such as prudence and temperance can be fully characterized by a preference relation over these lotteries. If preferences are defined in an expected-utility framework with differentiable utility, the direction of preference for a particular class of lottery pairs is equivalent to signing the nth derivative of the utility function. What makes our characterization appealing is its simplicity, which seems particularly amenable to experimentation.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1462.
Date of creation: 2005
Date of revision:
properness; prudence; risk apportionment; risk aversion; stochastic dominance; temperance; utility premium;
Other versions of this item:
- NEP-ALL-2005-08-13 (All new papers)
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