IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v48y1995i3-4p331-336.html
   My bibliography  Save this article

Risk-aversion, prudence and temperance: A unified approach

Author

Listed:
  • Eeckhoudt, Louis
  • Gollier, Christian
  • Schneider, Thierry

Abstract

Risk aversion can be defined either by the negative sign of the second derivative of the utility function or by the rejection of any mean-preserving increase in risk. The more recent notions of prudence and temperance have so far been defined exclusively by the sign of the third and the fourth derivative of the utility function. In this paper we show that, as risk aversion, prudence and temperance can also be interpreted as systematic attitudes towards transformation of a density function.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Eeckhoudt, Louis & Gollier, Christian & Schneider, Thierry, 1995. "Risk-aversion, prudence and temperance: A unified approach," Economics Letters, Elsevier, vol. 48(3-4), pages 331-336, June.
  • Handle: RePEc:eee:ecolet:v:48:y:1995:i:3-4:p:331-336
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0165-1765(94)00636-G
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eeckhoudt, Louis & Gollier, Christian & Schlesinger, Harris, 1996. "Changes in Background Risk and Risk-Taking Behavior," Econometrica, Econometric Society, vol. 64(3), pages 683-689, May.
    2. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    3. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May.
    4. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    5. Miles S. Kimball, 1991. "Precautionary Motives for Holding Assets," NBER Working Papers 3586, National Bureau of Economic Research, Inc.
    6. Gollier, Christian & John W. PRATT, 1993. "Weak Proper Risk Aversion And The Tempering Effect of Background Risk," Working Papers 018, Risk and Insurance Archive.
    7. Ormiston, Michael B. & Schlee, Edward E., 1992. "Necessary conditions for comparative statics under uncertainty," Economics Letters, Elsevier, vol. 40(4), pages 429-434, December.
    8. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qian Liu & Garrett J. van Ryzin, 2008. "Strategic Capacity Rationing to Induce Early Purchases," Management Science, INFORMS, vol. 54(6), pages 1115-1131, June.
    2. Cary Deck & Harris Schlesinger, 2010. "Exploring Higher Order Risk Effects," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1403-1420.
    3. repec:aea:aecrev:v:107:y:2017:i:12:p:3835-74 is not listed on IDEAS
    4. Farsi, Mehdi, 2010. "Risk aversion and willingness to pay for energy efficient systems in rental apartments," Energy Policy, Elsevier, vol. 38(6), pages 3078-3088, June.
    5. W. Henry Chiu, 2005. "Skewness Preference, Risk Aversion, and the Precedence Relations on Stochastic Changes," Management Science, INFORMS, vol. 51(12), pages 1816-1828, December.
    6. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
    7. Marie-Cécile Fagart & Bernard Sinclair-Desgagné, 2002. "Auditing Policies and Information Systems in Principal-Agent Analysis," CIRANO Working Papers 2002s-18, CIRANO.
    8. Menezes, Carmen F. & Wang, X.Henry, 2005. "Increasing outer risk," Journal of Mathematical Economics, Elsevier, vol. 41(7), pages 875-886, November.
    9. Chateauneuf, Alain & Gajdos, Thibault & Wilthien, Pierre-Henry, 2002. "The Principle of Strong Diminishing Transfer," Journal of Economic Theory, Elsevier, vol. 103(2), pages 311-333, April.
    10. Lionel Thomas, 2016. "The optimal contract under adverse selection in a moral-hazard model with a risk-averse agent," Working Papers 2016-09, CRESE.
    11. Bonilla, Claudio A. & Vergara, Marcos, 2013. "Credit rationing or entrepreneurial risk aversion? A comment," Economics Letters, Elsevier, vol. 120(2), pages 329-331.
    12. Phuong Bui & David Crainich & Louis Eeckhoudt, 2005. "Allocating health care resources under risk: risk aversion and prudence matter," Health Economics, John Wiley & Sons, Ltd., vol. 14(10), pages 1073-1077.
    13. Monika Mrázová & J. Peter Neary, 2017. "Not So Demanding: Demand Structure and Firm Behavior," American Economic Review, American Economic Association, vol. 107(12), pages 3835-3874, December.
    14. Gollier, Christian, 2004. "The Consumption-Based Determinants of the Term Structure of Discount Rates," IDEI Working Papers 296, Institut d'Économie Industrielle (IDEI), Toulouse.
    15. Gollier, Christian & Kimball, Miles S., 2018. "Toward a Systematic Approach to the Economic Effects of Risk: Characterizing Utility Functions"," TSE Working Papers 18-909, Toulouse School of Economics (TSE).
    16. AMIR, Rabah & CZUPRYNA, Marcin, 2004. "On inverse utility and third-order effects in the economics of uncertainty," CORE Discussion Papers 2004045, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. Paulsson, Thomas & Sproule, Robert, 2002. "Stochastically dominating shifts and the competitive firm," European Journal of Operational Research, Elsevier, vol. 141(1), pages 107-112, August.
    18. repec:gam:jgames:v:9:y:2018:i:1:p:12-:d:134141 is not listed on IDEAS
    19. Gollier, Christian & Kimball, Miles S., 2018. "Toward a Systematic Approach to the Economic Effects of Risk: Characterizing Utility Functions"," IDEI Working Papers 884, Institut d'Économie Industrielle (IDEI), Toulouse.
    20. Thierry Schneider & Caroline Schieber & Louis Eeckhoudt & Christian Gollier, 1997. "Economics of Radiation Protection: Equity Considerations," Theory and Decision, Springer, vol. 43(3), pages 241-251, November.
    21. Bernard Sinclair-Desgagné & Marie-Cécile Fagart, 2004. "Auditing policies and information," Econometric Society 2004 North American Winter Meetings 86, Econometric Society.
    22. Lionel Thomas, 2016. "The optimal contract under adverse selection in a moral-hazard model with a risk-averse agent," Working Papers hal-01374709, HAL.
    23. Patrick Roger, 2011. "Mixed risk aversion and preference for risk disaggregation: a story of moments," Theory and Decision, Springer, vol. 70(1), pages 27-44, January.
    24. Nakamura, Yutaka, 2015. "Differentiability of von Neumann–Morgenstern utility functions," Journal of Mathematical Economics, Elsevier, vol. 60(C), pages 74-80.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:48:y:1995:i:3-4:p:331-336. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.