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Even (mixed) risk lovers are prudent

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  • David Crainich

    ()
    (CNRS-LEM and IESEG School of Management)

  • Louis Eeckhoudt

    (IESEG School of Management (LEM-CNRS) and CORE (Université Catholique de Louvain))

  • Alain Trannoy

    (Aix-Marseille School of Economics, EHESS)

Abstract

The purpose of this note is to analyze properties of the risk lovers? utility function beyond the positive sign of its second order derivative. We show that??contrarily to a priori beliefs??risk lovers are prudent and are willing to accumulate precautionary savings.

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Bibliographic Info

Paper provided by IESEG School of Management in its series Working Papers with number 2011-ECO-05.

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Length: 10 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:ies:wpaper:e201105

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  1. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
  2. Caballé, Jordi & Pomansky, Alexey, 1995. "Mixed Risk Aversion," Working Paper Series 444, Research Institute of Industrial Economics.
  3. Ekern, Steinar, 1980. "Increasing Nth degree risk," Economics Letters, Elsevier, vol. 6(4), pages 329-333.
  4. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  5. EECKHOUDT, Louis & SCHELSINGER, Harris & TSETLIN, Ilia, . "Apportioning of risks via stochastic dominance," CORE Discussion Papers RP -2096, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-32, December.
  7. Cary Deck & Harris Schlesinger, 2010. "Exploring Higher Order Risk Effects," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1403-1420.
  8. Noussair, C.N. & Trautmann, S.T. & Kuilen, G. van de, 2011. "Higher Order Risk Attitudes, Demographics, and Financial Decisions," Discussion Paper 2011-055, Tilburg University, Center for Economic Research.
  9. X. Henry Wang & Carmen F. Menezes, 2004. "Increasing Outer Risk," Working Papers 0413, Department of Economics, University of Missouri, revised 23 Dec 2004.
  10. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
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Citations

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Cited by:
  1. Gollier, Christian & Hammitt, James & Treich, Nicolas, 2013. "Risk and Choice: A Research Saga," TSE Working Papers 13-444, Toulouse School of Economics (TSE).
  2. Laurie Bréban & André Lapidus, 2013. "Adam Smith on lotteries: an interpretation and formal restatement," Working Papers hal-00914222, HAL.
  3. Cary Deck & Harris Schlesinger, 2012. "Consistency of Higher Order Risk Preferences," CESifo Working Paper Series 4047, CESifo Group Munich.
  4. Jindapon, Paan, 2013. "Do risk lovers invest in self-protection?," Economics Letters, Elsevier, vol. 121(2), pages 290-293.

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