This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Incremental Risk Vulnerability

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Günter Franke () (Department of Economics, University of Konstanz)
Richard C. Stapleton () (University of Manchester and University of Melbourne)
Marti G. Subrahmanyam () (Stern School of Business, New York University)

Additional information is available for the following registered author(s):

Abstract

We present a necessary and sufficient condition on an agent’s utility function for a simple mean preserving spread in an independent background risk to increase the agent’s risk aversion (incremental risk vulnerability). Gollier and Pratt (1996) have shown that declining and convex risk aversion as well as standard risk aversion are sufficient for risk vulnerability. We show that these conditions are also sufficient for incremental risk vulnerability. In addition, we present sufficient conditions for a restricted set of stochastic increases in an independent background risk to increase risk aversion.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://cofe.uni-konstanz.de/Papers/dp05_08.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 05-08.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 19 pages
Date of creation: 23 Sep 2005
Date of revision:
Handle: RePEc:knz:cofedp:0508

Contact details of provider:
Postal: Fach D 147, D-78457 Konstanz
Phone: +49-7531-88-2204
Fax: +49-7531-88-4450
Web page: http://cofe.uni-konstanz.de
More information through EDIRC

Order Information:
Email:
Web: http://cofe.uni-konstanz.de

For technical questions regarding this item, or to correct its listing, contact: (Ingmar Nolte).

Related research
Keywords:

Find related papers by JEL classification:
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Donald J. Meyer & Jack Meyer, 1998. "Changes in Background Risk and the Demand for Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan Journals, vol. 23(1), pages 29-40, June. [Downloadable!] (restricted)
  2. EECKHOUDT, Louis & Christian GOLLIER & Harris SCHLESINGER, 1994. "Changes in Background Risk and Risk Taking Behavior," Working Papers 005, Risk and Insurance Archive.
    Other versions:
  3. Kihlstrom, Richard E & Romer, David & Williams, Steve, 1981. "Risk Aversion with Random Initial Wealth," Econometrica, Econometric Society, vol. 49(4), pages 911-20, June. [Downloadable!] (restricted)
  4. Franke, Gunter & Stapleton, Richard C. & Subrahmanyam, Marti G., 1998. "Who Buys and Who Sells Options: The Role of Options in an Economy with Background Risk," Journal of Economic Theory, Elsevier, vol. 82(1), pages 89-109, September. [Downloadable!] (restricted)
  5. Nachman, David C., 1982. "Preservation of "more risk averse" under expectations," Journal of Economic Theory, Elsevier, vol. 28(2), pages 361-368, December. [Downloadable!] (restricted)
  6. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January. [Downloadable!] (restricted)
  7. Thomas Eichner & Andreas Wagener, 2003. "Variance Vulnerability, Background Risks, and Mean-Variance Preferences," The Geneva Risk and Insurance Review, Palgrave Macmillan Journals, vol. 28(2), pages 173-184, December. [Downloadable!] (restricted)
  8. Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July. [Downloadable!] (restricted)
  9. Gollier, Christian & John W. PRATT, 1993. "Weak Proper Risk Aversion And The Tempering Effect of Background Risk," Working Papers 018, Risk and Insurance Archive.
  10. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May. [Downloadable!] (restricted)
    Other versions:
  11. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? IDEAS also indexes software components.

This page was last updated on 2009-11-26.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.