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New results on the relationship among risk aversion, prudence and temperance

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  • Menegatti, Mario

Abstract

This note studies the relationships between different aspects of agent’s preferences toward risk. We show that, under the assumptions of non-satiation and bounded marginal utility, prudence implies risk aversion (imprudence implies risk loving) and that temperance implies prudence (intemperance implies imprudence). The implications of these results for comparing risks in the cases of increase in risk, increase in downside risk and increase in outer risk are discussed.

Suggested Citation

  • Menegatti, Mario, 2014. "New results on the relationship among risk aversion, prudence and temperance," European Journal of Operational Research, Elsevier, vol. 232(3), pages 613-617.
  • Handle: RePEc:eee:ejores:v:232:y:2014:i:3:p:613-617
    DOI: 10.1016/j.ejor.2013.08.003
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    References listed on IDEAS

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    Cited by:

    1. Jim Engle-Warnick & Diego Pulido & Marine de Montaignac, 2016. "A Comparison of Survey and Incentivized-Based Risk Attitude Elicitation," CIRANO Working Papers 2016s-40, CIRANO.
    2. repec:pal:easeco:v:44:y:2018:i:2:d:10.1057_s41302-016-0081-y is not listed on IDEAS
    3. Eeckhoudt, Louis & Fiori, Anna Maria & Rosazza Gianin, Emanuela, 2016. "Loss-averse preferences and portfolio choices: An extension," European Journal of Operational Research, Elsevier, vol. 249(1), pages 224-230.

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