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Generalized Expected Utility Analysis of Multivariate Risk Aversion

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  • Karni, Edi

Abstract

This paper extends M. J. Machina's generalized expected utility analysis to preferences over multivariate distributions. Within the extended framework, the relation "more risk averse than" is defined, characterized, and applied to the analysis of consumption-saving decisions under risk. The notion of decreasing risk aversion is also characterized. The paper shows that standard results obtained within the framework of expected utility theory can be extended if the restrictions imposed on the utility function in expected utility theory are imposed on the local utility functions in Machina's theory. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Karni, Edi, 1989. "Generalized Expected Utility Analysis of Multivariate Risk Aversion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 297-305, May.
  • Handle: RePEc:ier:iecrev:v:30:y:1989:i:2:p:297-305
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    Cited by:

    1. Sudhir A. Shah, 2006. "Comparative risk aversion when the outcomes are vectors," Working papers 149, Centre for Development Economics, Delhi School of Economics.
    2. Hannsgen, Greg, 2008. "The welfare economics of macroeconomics and chooser-dependent, non-expected utility preferences: A Senian critique with an application to the costs of the business cycle," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 1980-1993, October.
    3. Colson, Gérard, 1993. "Prenons-nous assez de risque dans les théories du risque?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 69(1), pages 111-141, mars.
    4. Machina, Mark J, 2001. "Almost-Objective Uncertainty," University of California at San Diego, Economics Working Paper Series qt3ps1k85f, Department of Economics, UC San Diego.
    5. Sudhir A. Shah, 2010. "Comparative Risk Aversion When the Outcomes are Vectors," Working Papers id:2907, eSocialSciences.
    6. Yonatan Aumann, 2015. "A conceptual foundation for the theory of risk aversion," Discussion Paper Series dp686, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    7. Arthur Charpentier & Alfred Galichon & Marc Henry, 2016. "Local Utility and Multivariate Risk Aversion," Mathematics of Operations Research, INFORMS, vol. 41(2), pages 466-476, May.
    8. 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.
    9. Greg Hannsgen, 2007. "Are the Costs of the Business Cycle 'Trivially Small'?," Economics Working Paper Archive wp_492, Levy Economics Institute.
    10. Horowitz, John K., 2006. "The Becker-DeGroot-Marschak mechanism is not necessarily incentive compatible, even for non-random goods," Economics Letters, Elsevier, vol. 93(1), pages 6-11, October.

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