Local Utility and Multivariate Risk Aversion
AbstractWe revisit Machina's local utility as a tool to analyze attitudes to multivariate risks. Using martingale embedding techniques, we show that for non-expected utility maximizers choosing between multivariate prospects, aversion to multivariate mean preserving increases in risk is equivalent to the concavity of the local utility functions, thereby generalizing Machina's result in . To analyze comparative risk attitudes within the multivariate extension of rank dependent expected utility of , we extend Quiggin's monotone mean and utility preserving increases in risk and show that the useful characterization given in  still holds in the multivariate case.
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Bibliographic InfoPaper provided by CIRANO in its series CIRANO Working Papers with number 2012s-17.
Date of creation: 01 Jun 2012
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local utility; multivariate risk aversion; multivariate rank dependent utility; pessimism; multivariate Bickel-Lehmann dispersion;
Other versions of this item:
- NEP-ALL-2012-07-01 (All new papers)
- NEP-MIC-2012-07-01 (Microeconomics)
- NEP-UPT-2012-07-01 (Utility Models & Prospect Theory)
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