Fear of loss, inframodularity, and transfers
There exist several characterizations of concavity for univariate functions. One of them states that a function is concave if and only if it has nonincreasing differences. This definition provides a natural generalization of concavity for multivariate functions called inframodularity. Inframodular transfers are defined and it is shown that a finite lottery is preferred to another by all expected utility maximizers with an inframodular utility if and only if the first lottery can be obtained from the second via a sequence of inframodular transfers. This result is a natural multivariate generalization of Rothschild and Stiglitzʼs construction based on mean preserving spreads.
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Volume (Year): 147 (2012)
Issue (Month): 4 ()
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