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Prudence, temperance, edginess, and risk apportionment as decreasing sensitivity to detrimental changes

  • Denuit, Michel
  • Rey, Béatrice
Registered author(s):

    This paper shows that the notions of prudence, temperance, edginess, and, more generally, risk apportionment of any degree are the consequences of the natural idea that the sensitivity to detrimental changes should decrease with initial wealth. In the setting of Epstein and Tanny (1980), this turns out to be equivalent to the supermodularity of the expected utility for some specific 4-state lotteries.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0165-4896(10)00055-7
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    Article provided by Elsevier in its journal Mathematical Social Sciences.

    Volume (Year): 60 (2010)
    Issue (Month): 2 (September)
    Pages: 137-143

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    Handle: RePEc:eee:matsoc:v:60:y:2010:i:2:p:137-143
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505565

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    1. Eeckhoudt, Louis & Schlesinger, Harris & Tsetlin, Ilia, 2009. "Apportioning of risks via stochastic dominance," Journal of Economic Theory, Elsevier, vol. 144(3), pages 994-1003, May.
    2. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
    3. Doherty, Neil A & Schlesinger, Harris, 1983. "Optimal Insurance in Incomplete Markets," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 1045-54, December.
    4. Gollier, Christian & Pratt, John W, 1996. "Risk Vulnerability and the Tempering Effect of Background Risk," Econometrica, Econometric Society, vol. 64(5), pages 1109-23, September.
    5. Lajeri-Chaherli, Fatma, 2004. "Proper prudence, standard prudence and precautionary vulnerability," Economics Letters, Elsevier, vol. 82(1), pages 29-34, January.
    6. Denuit, Michel & Vylder, Etienne De & Lefevre, Claude, 1999. "Extremal generators and extremal distributions for the continuous s-convex stochastic orderings," Insurance: Mathematics and Economics, Elsevier, vol. 24(3), pages 201-217, May.
    7. Caballe, Jordi & Pomansky, Alexey, 1996. "Mixed Risk Aversion," Journal of Economic Theory, Elsevier, vol. 71(2), pages 485-513, November.
    8. repec:cor:louvrp:-2207 is not listed on IDEAS
    9. BLEICHRODT, Han & EECKHOUDT, Louis, . "Saving under rank-dependent utility," CORE Discussion Papers RP 1752, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Jones-Lee, Michael W, 1974. "The Value of Changes in the Probability of Death or Injury," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 835-49, July/Aug..
    11. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279.
    12. M. Denuit & L. Eeckhoudt & Béatrice Rey, 2010. "Some consequences of correlation aversion in decision science," Post-Print halshs-00485722, HAL.
    13. DENUIT, Michel & EECKHOUDT, Louis & REY, Béatrice, . "Some consequences of correlation aversion in decision science," CORE Discussion Papers RP 2207, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. Marie-Cécile Fagart & Bernard Sinclair-Desgagné, 2007. "Ranking Contingent Monitoring Systems," Management Science, INFORMS, vol. 53(9), pages 1501-1509, September.
    15. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
    16. Jindapon, Paan & Neilson, William S., 2007. "Higher-order generalizations of Arrow-Pratt and Ross risk aversion: A comparative statics approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 719-728, September.
    17. Dhaene, Jan & Denuit, Michel, 1999. "The safest dependence structure among risks," Insurance: Mathematics and Economics, Elsevier, vol. 25(1), pages 11-21, September.
    18. 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.
    19. Chiu, W.Henry, 2005. "Degree of downside risk aversion and self-protection," Insurance: Mathematics and Economics, Elsevier, vol. 36(1), pages 93-101, February.
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