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Fear of Loss and Happiness of Win: Properties and Applications

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  • Jingyuan Li

Abstract

This article proposes two coefficients, “fear of loss” (FL) and “happiness of win” (HW), to capture the variation of risk attitude with respect to wealth. Several properties of interpersonal comparisons of FL and HW are achieved. We present three applications in the default risk bargaining problem (Tibiletti, 2006) to demonstrate that these properties can deliver more shortcut bargaining conditions and unambiguous comparative static results in situations involving interpersonal risk exchanges. We show that FL and HW coefficients are instrumental in explaining the comparative diffidence between an insurer and an insured.

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  • Jingyuan Li, 2010. "Fear of Loss and Happiness of Win: Properties and Applications," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(4), pages 749-766, December.
    • Handle: RePEc:bla:jrinsu:v:77:y:2010:i:4:p:749-766
    DOI: 10.1111/j.1539-6975.2010.01364.x
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    References listed on IDEAS

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    1. Luisa Tibiletti, 2006. "A Shortcut Way of Pricing Default Risk Through Zero‐Utility Principle," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(2), pages 303-308, June.
    2. Eeckhoudt, Louis & Pestieau, Pierre, 2008. "A note on longevity enhancing investment," Economics Letters, Elsevier, vol. 101(1), pages 57-59, October.
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    4. Jones-Lee, M W, 1980. "Maximum Acceptable Physical Risk and a New Measure of Financial Risk-Aversion," Economic Journal, Royal Economic Society, vol. 90(359), pages 550-568, September.
    5. Parkash Chander, 2006. "Repetitive risk aversion," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(3), pages 701-711, November.
    6. Parkash Chander, 2007. "Income Tax Evasion and the Fear of Ruin," Economica, London School of Economics and Political Science, vol. 74(294), pages 315-328, May.
    7. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-1161, July.
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    Cited by:

    1. Wang, Jianli & Wang, Hongxia & Yick, Ho Yin, 2019. "How do changes in risk and risk aversion affect self-protection with Selden/Kreps–Porteus preferences?," Insurance: Mathematics and Economics, Elsevier, vol. 88(C), pages 1-6.
    2. Spreeuw, Jaap, 2014. "Archimedean copulas derived from utility functions," Insurance: Mathematics and Economics, Elsevier, vol. 59(C), pages 235-242.

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