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The Generalised Extreme Value Distribution as Utility Function

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Author Info
Denis Conniffe () (Economics, National University of Ireland, Maynooth)
Abstract

The idea that probability distribution functions could provide appropriate mathematical forms for utility functions representing risk aversion is of respectable antiquity. But the relatively few examples that have appeared in the economics literature have displayed quite restrictive risk aversion properties. This paper examines the potential of the generalised extreme value (GEV) distribution as utility function, showing it possesses considerable flexibility as regards risk aversion properties, even in its single parameter form. The paper concludes that the GEV utility function is worth considering for applications in cases where parametric parsimony matters.

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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1780907.

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Date of creation: 2007
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Handle: RePEc:may:mayecw:n1780907

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Postal: Maynooth, Co. Kildare
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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. Caballe, J. & Pomansky, A., 1995. "Mixed Risk Aversion," Research Institute of Industrial Economics Working Papers 444, Research Institute of Industrial Economics (IFN).
  2. Meyer, Jack, 2007. "Representing Risk Preferences in Expected Utility Based Decision Models," SCC-76 Meeting, March 15-17, 2007, Gulf Shores, Alabama 9380, SCC-76: Economics and Management of Risk in Agriculture and Natural Resources. [Downloadable!]
  3. Manski, Charles F, 2001. " Daniel McFadden and the Econometric Analysis of Discrete Choice," Scandinavian Journal of Economics, Blackwell Publishing, vol. 103(2), pages 217-29, June. [Downloadable!] (restricted)
  4. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279. [Downloadable!] (restricted)
  5. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January. [Downloadable!] (restricted)
  6. Caballe, Jordi & Pomansky, Alexey, 1996. "Mixed Risk Aversion," Journal of Economic Theory, Elsevier, vol. 71(2), pages 485-513, November. [Downloadable!] (restricted)
  7. Meyer, Donald J. & Meyer, Jack, 2005. "Risk preferences in multi-period consumption models, the equity premium puzzle, and habit formation utility," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1497-1515, November. [Downloadable!] (restricted)
  8. Thaler, Richard H & Shefrin, H M, 1981. "An Economic Theory of Self-Control," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 392-406, April. [Downloadable!] (restricted)
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  9. Gregory, Nathaniel, 1980. "Relative Wealth and Risk Taking: A Short Note on the Friedman-Savage Utility Function," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1226-30, December. [Downloadable!] (restricted)
  10. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May. [Downloadable!] (restricted)
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  11. LiCalzi, Marco & Sorato, Annamaria, 2006. "The Pearson system of utility functions," European Journal of Operational Research, Elsevier, vol. 172(2), pages 560-573, July. [Downloadable!] (restricted)
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  1. Meyer, Jack, 2007. "Representing Risk Preferences in Expected Utility Based Decision Models," SCC-76 Meeting, March 15-17, 2007, Gulf Shores, Alabama 9380, SCC-76: Economics and Management of Risk in Agriculture and Natural Resources. [Downloadable!]
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