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Changing risks and optimal effort

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  • Crainich, David
  • Eeckhoudt, Louis
  • Menegatti, Mario

Abstract

Consider a decision maker who can engage in effort to increase the probability of facing a better risky situation. Intuition suggests that effort should increase when there is a greater difference between the best risky situation and the worse one. We show that this intuition is not necessarily valid and we consider the cases of risk averters and risk lovers.

Suggested Citation

  • Crainich, David & Eeckhoudt, Louis & Menegatti, Mario, 2016. "Changing risks and optimal effort," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 97-106.
  • Handle: RePEc:eee:jeborg:v:125:y:2016:i:c:p:97-106
    DOI: 10.1016/j.jebo.2016.01.009
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:jeborg:v:137:y:2017:i:c:p:19-36 is not listed on IDEAS
    2. repec:pal:easeco:v:44:y:2018:i:2:d:10.1057_s41302-016-0081-y is not listed on IDEAS
    3. Maddalena Ferranna, 2017. "Does Inefficient Risk Sharing Increase Public Self-Protection?," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 42(1), pages 59-85, March.
    4. Wong, Kit Pong, 2017. "A note on risky targets and effort," Insurance: Mathematics and Economics, Elsevier, vol. 73(C), pages 27-30.

    More about this item

    Keywords

    Effort; Self-protection; Nth-order risk changes; Mixed risk aversion; Mixed risk loving;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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