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Local Utility and Multivariate Risk Aversion

Author

Listed:
  • Arthur Charpentier

    (Département de mathématiques, Université du Québec à Montréal)

  • Alfred Galichon

    (Economics Department, Ecole Polytechnique)

  • Marc Henry

    (Department of Economics, Université de Montréal)

Abstract

We revisit Machina's local utility as a tool to analyze attitudes to multivariate risks. Using martingale embedding techniques, we show that for nonexpected utility maximizers choosing between multivariate prospects, aversion to multivariate mean preserving increases in risk is equivalent to the concavity of the local utility functions, thereby generalizing Machina's result in [18]. To analyze comparative risk attitudes within the multivariate extension of rank dependen t expected utility of [10], we extend Quiggin's monotone mean and utility preserving increases in risk and show that the useful characterization given in [17] still holds in the multivariate case.

Suggested Citation

  • Arthur Charpentier & Alfred Galichon & Marc Henry, 2012. "Local Utility and Multivariate Risk Aversion," CIRJE F-Series CIRJE-F-836, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2012cf836
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    References listed on IDEAS

    as
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