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Utility functions as a model of attitude towards risk

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  • Nikola Cholakov

Abstract

In this paper we follow such an approach which explains the motivation and behavior of both insured and insurers and throws some light on the background of the insurance premiums. In addition it is shown that according to the Law of diminishing marginal utility more risk aversive and cautious attitude limits the negative impact of incurred financial losses on utility scale.

Suggested Citation

  • Nikola Cholakov, 2013. "Utility functions as a model of attitude towards risk," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 103-117.
    • Handle: RePEc:bas:econth:y:2013:i:1:p:103-117
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    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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