Risk apportionment via bivariate stochastic dominance
This paper extends to bivariate utility functions, Eeckhoudt et al.’s (2009) result for the combination of ‘bad’ and ‘good’. The decision-maker prefers to get some of the ‘good’ and some of the ‘bad’ to taking a chance on all the ‘good’ or all the ‘bad’ where ‘bad’ is defined via (N,M)-increasing concave order. We generalize the concept of bivariate risk aversion introduced by Richard (1975) to higher orders. Importantly, in the bivariate framework, preference for the lottery [(X̃,T̃);(Ỹ,Z̃)] to the lottery [(X̃,Z̃);(Ỹ,T̃)] when (X̃,Z̃) dominates (Ỹ,T̃) via (N,M)-increasing concave order allows us to assert bivariate risk apportionment of order (N,M) and to extend the concept of risk apportionment defined by Eeckhoudt and Schlesinger (2006).
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- EECKHOUDT, louis & REY, BÃ©atrice & SCHLESINGER, Harris, .
"A good sign for multivariate risk taking,"
CORE Discussion Papers RP
1900, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- X. Henry Wang & Carmen F. Menezes, 2004.
"Increasing Outer Risk,"
0413, Department of Economics, University of Missouri, revised 23 Dec 2004.
- Scarsini, Marco, 1985. "Stochastic dominance with pair-wise risk aversion," Journal of Mathematical Economics, Elsevier, vol. 14(2), pages 187-201, April.
- John Heaton & Deborah Lucas, 2000. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk," Journal of Finance, American Finance Association, vol. 55(3), pages 1163-1198, 06.
- Edwards, Ryan D, 2008. "Health Risk and Portfolio Choice," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 472-485.
- L. Eeckhoudt & H. Schlesinger & Béatrice Rey, 2007. "A good sign for multivariate risk taking," Post-Print hal-00283446, HAL.
- EECKHOUDT, Louis & SCHLESINGER, Harris, .
"Putting risk in its proper place,"
CORE Discussion Papers RP
1871, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Harvey S. Rosen & Stephen Wu, 2003.
"Portfolio Choice and Health Status,"
NBER Working Papers
9453, National Bureau of Economic Research, Inc.
- Franke, Günter & Schlesinger, Harris & Stapleton, Richard C., 2002.
"Multiplicative background risk,"
Discussion Papers, various Research Units
FS IV 02-06, Social Science Research Center Berlin (WZB).
- Louis Eeckhoudt & Harris Schlesinger & Ilia Tsetlin, 2008.
"Apportioning of Risks via Stochastic Dominance,"
CESifo Working Paper Series
2467, CESifo Group Munich.
- Scott F. Richard, 1975. "Multivariate Risk Aversion, Utility Independence and Separable Utility Functions," Management Science, INFORMS, vol. 22(1), pages 12-21, September.
- Denuit, Michel & Lefevre, Claude & Mesfioui, M'hamed, 1999. "A class of bivariate stochastic orderings, with applications in actuarial sciences," Insurance: Mathematics and Economics, Elsevier, vol. 24(1-2), pages 31-50, March.
- Larry G. Epstein & Stephen M. Tanny, 1980. "Increasing Generalized Correlation: A Definition and Some Economic Consequences," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 16-34, February.
- L. Eeckhoudt & H. Schlesinger, 2006. "Putting risk in its proper place," Post-Print hal-00283170, HAL.
When requesting a correction, please mention this item's handle: RePEc:eee:mateco:v:47:y:2011:i:4:p:448-452. 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: (Zhang, Lei)
If references are entirely missing, you can add them using this form.