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Risk-aversion, prudence and temperance: A unified approach

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

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.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 48 (1995)
Issue (Month): 3-4 (June)
Pages: 331-336

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Handle: RePEc:eee:ecolet:v:48:y:1995:i:3-4:p:331-336
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Eeckhoudt, Louis & Gollier, Christian & Schlesinger, Harris, 1996. "Changes in Background Risk and Risk-Taking Behavior," Econometrica, Econometric Society, vol. 64(3), pages 683-89, May.
  2. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May.
  3. Miles S. Kimball, 1991. "Precautionary Motives for Holding Assets," NBER Working Papers 3586, National Bureau of Economic Research, Inc.
  4. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  5. Ormiston, Michael B. & Schlee, Edward E., 1992. "Necessary conditions for comparative statics under uncertainty," Economics Letters, Elsevier, vol. 40(4), pages 429-434, December.
  6. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  7. Gollier, Christian & John W. PRATT, 1993. "Weak Proper Risk Aversion And The Tempering Effect of Background Risk," Working Papers 018, Risk and Insurance Archive.
  8. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-32, December.
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