Comparative Risk Aversion under Background Risks Revisited
AbstractThis note determines a sufficient condition on (von Neumann-Morgenstern) utility functions to preserve (reserve) comparative risk aversion under general background risks. Our condition is weaker than the one determined by Nachman (1982, Journal of Economic Theory). Nachmanfs condition requires the monotonicity in the global sense, in other hand our condition only requires it in the local sense. And this generalization may make the condition on utility functions to hold the desirable property consisitent with the recent empirical observation.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 06-16.
Length: 12 pages
Date of creation: Jun 2006
Date of revision:
Background risk; comparative risk aversion; single crossing condition.;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-09 (All new papers)
- NEP-FMK-2006-07-09 (Financial Markets)
- NEP-UPT-2006-07-09 (Utility Models & Prospect Theory)
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- Osaki, Yusuke & Quiggin, John, 2007. "A Risk-neutral Characterization of Optimization and Pessimism and its Applications," Risk and Sustainable Management Group Working Papers 151180, University of Queensland, School of Economics.
- Osaki, Yusuke & Quiggin, John, 2008. "Stochastic dominance representation of optimistic belief: Theory and applications," Economics Letters, Elsevier, vol. 101(3), pages 275-278, December.
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