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Generalized Expected Utility Analysis of Risk Aversion with State-Dependent Preference

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  • Karni, Edi

Abstract

In this paper the author develops measures of absolute risk aversion for preference relations on risky prospects that are state-dependent and are representable by Frechet differentiable, nonlinear, functionals. A comparative statics analysis of optimal air travel insurance coverage illustrates the usefulness of the proposed measures. It is also demonstrated that the analytical framework described above is consistent with the purchase of air travel insurance even in circumstances where expected utility theory is not. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Karni, Edi, 1987. "Generalized Expected Utility Analysis of Risk Aversion with State-Dependent Preference," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 229-240, February.
  • Handle: RePEc:ier:iecrev:v:28:y:1987:i:1:p:229-40
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    Cited by:

    1. Machina, Mark J, 2001. "Almost-Objective Uncertainty," University of California at San Diego, Economics Working Paper Series qt3ps1k85f, Department of Economics, UC San Diego.
    2. Robert G. Chambers & John Quiggin, 2005. "Comparative Risk Aversion for State-Dependent Preferences," Risk & Uncertainty Working Papers WP5R05, Risk and Sustainable Management Group, University of Queensland.
    3. Galizzi, Matteo M. & Machado, Sara R. & Miniaci, Raffaele, 2016. "Temporal stability, cross-validity, and external validity of risk preferences measures: experimental evidence from a UK representative sample," LSE Research Online Documents on Economics 67554, London School of Economics and Political Science, LSE Library.
    4. Machina, Mark J, 2000. "Payoff Kinks in Preferences Over Lotteries," University of California at San Diego, Economics Working Paper Series qt7vn7d2hs, Department of Economics, UC San Diego.
    5. Hui Huang & Shunming Zhang, 2011. "The Distorted Theory of Rank-Dependent Expected Utility," Annals of Economics and Finance, Society for AEF, vol. 12(2), pages 233-263, November.

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