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Dual Moments and Risk Attitudes

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  • Louis R. Eeckhoudt

    (IÉSEG School of Management, Catholic University of Lille, Lille 59000, France; Center for Operations Research and Econometrics, University of Louvain, 1348 Ottignies-Louvain-la-Neuve, Belgium)

  • Roger J. A. Laeven

    (Amsterdam School of Economics, University of Amsterdam, 1001 NJ Amsterdam, Netherlands; Eurandom, 5600 MB Eindhoven, Netherlands; CentER, 5000 LE Tilburg, Netherlands)

Abstract

In decision under risk, the primal moments of mean and variance play a central role to define the local index of absolute risk aversion. In this paper, we show that in the canonical nonexpected utility models provided by the dual theory and rank-dependent utility, dual moments have to be used instead of, or on par with, their primal counterparts to obtain an equivalent index of absolute risk aversion.

Suggested Citation

  • Louis R. Eeckhoudt & Roger J. A. Laeven, 2022. "Dual Moments and Risk Attitudes," Operations Research, INFORMS, vol. 70(3), pages 1330-1341, May.
    • Handle: RePEc:inm:oropre:v:70:y:2022:i:3:p:1330-1341
    DOI: 10.1287/opre.2020.2040
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    References listed on IDEAS

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    1. Chateauneuf, Alain & Cohen, Michele & Meilijson, Isaac, 2004. "Four notions of mean-preserving increase in risk, risk attitudes and applications to the rank-dependent expected utility model," Journal of Mathematical Economics, Elsevier, vol. 40(5), pages 547-571, August.
    2. Alain Chateauneuf & Michéle Cohen & Isaac Meilijson, 2005. "More pessimism than greediness: a characterization of monotone risk aversion in the rank-dependent expected utility model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(3), pages 649-667, April.
    3. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
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    Cited by:

    1. Kim, Bara & Kim, Jeongsim, 2019. "Stochastic ordering of Gini indexes for multivariate elliptical risks," Insurance: Mathematics and Economics, Elsevier, vol. 88(C), pages 151-158.

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