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Multiple Risks and Mean-Variance Preferences

Author

Listed:
  • Thomas Eichner

    () (Department of Economics, University of Bielefeld, 33615 Bielefeld, Germany)

  • Andreas Wagener

    () (Institute of Social Policy, University of Hannover, 30167 Hannover, Germany)

Abstract

We analyze comparative static effects under uncertainty when a decision maker has mean-variance preferences and faces a generic, quasi-linear decision problem with both an endogenous risk and a background risk. In terms of mean-variance preferences, we fully characterize the effects of changes in the location, scale, and concordance parameters of the stochastic environment on optimal risk taking. Presupposing compatibility between the mean-variance and the expected-utility approach, we then translate these mean-variance properties into their analogues for von Neumann-Morgenstern utility functions.

Suggested Citation

  • Thomas Eichner & Andreas Wagener, 2009. "Multiple Risks and Mean-Variance Preferences," Operations Research, INFORMS, vol. 57(5), pages 1142-1154, October.
  • Handle: RePEc:inm:oropre:v:57:y:2009:i:5:p:1142-1154
    DOI: 10.1287/opre.1090.0692
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    File URL: http://dx.doi.org/10.1287/opre.1090.0692
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    References listed on IDEAS

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    1. repec:wsi:apjorx:v:34:y:2017:i:04:n:s021759591750018x is not listed on IDEAS
    2. Michel Denuit & Louis Eeckhoudt & Mario Menegatti, 2011. "Correlated risks, bivariate utility and optimal choices," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 39-54, January.
    3. Udo Broll & Soumyatanu Mukherjee, 2018. "The attitude of multinationals towards risks," Discussion Papers 2018-02, University of Nottingham, GEP.
    4. Soumyatanu Mukherjee & Sidhartha S Padhi, 2018. "Risk connectivity and risk mitigation: An analytical framework," Discussion Papers 2018-11, University of Nottingham, CREDIT.
    5. Thomas Eichner & Andreas Wagener, 2011. "Portfolio allocation and asset demand with mean-variance preferences," Theory and Decision, Springer, vol. 70(2), pages 179-193, February.
    6. Alghalith, Moawia & Niu, Cuizhen & Wong, Wing-Keung, 2017. "The impacts of joint energy and output prices uncertainties in a mean-variance framework," MPRA Paper 79739, University Library of Munich, Germany.
    7. Xu Guo & Andreas Wagener & Wing-Keung Wong & Lixing Zhu, "undated". "The two-moment decision model with additive risks," Risk Management 4, Palgrave Macmillan.
    8. Moawia Alghalith & Xu Guo & Cuizhen Niu & Wing-Keung Wong, 2017. "Input Demand Under Joint Energy and Output Prices Uncertainties," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(04), pages 1-12, August.

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    decision analysis; risk;

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