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On inverse utility and third-order effects in the economics of uncertainty

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  • AMIR, Rabah
  • CZUPRYNA, Marcin

Abstract

We prove that the coefficient of absolute prudence is greater than k - times coefficient of absolute risk aversion for the utility function if and only if the coefficient of absolute prudence is (3-k) times the coefficient of absolute risk aversion for the inverse utility function. Moreover this is also equivalent to (k-2)-concavity of the first derivative of the inverse utility function.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2004045.

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Date of creation: 00 Jun 2004
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Handle: RePEc:cor:louvco:2004045

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Keywords: absolute prudence; absolute risk aversion; inverse utility function;

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  1. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Social Choice: A Mean Voter Theorem," Econometrica, Econometric Society, vol. 59(1), pages 1-23, January.
  2. EECKHOUDT, Louis & Christian GOLLIER & Thierry SCHNEIDER, 1994. "Risk Aversion, Prudence and Temperance : A Unified Approach," Working Papers 006, Risk and Insurance Archive.
  3. Bernard Sinclair-Desgagné & Marie-Cécile Fagart, 2004. "Auditing policies and information," Econometric Society 2004 North American Winter Meetings 86, Econometric Society.
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