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Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption

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  • Eric Langlais

Abstract

By means of minimal assumptions on the individual preferences, I show that the Willingness To Pay (WTP) for both a FSD and SSD reduction of risk is the sum of a mean effect, a pure risk effect and a wealth effect. As a result, the WTP of a risk-averse decision maker may be lower than the WTP of a risk-neutral one, for a large class of individual preferences’ representation and a large class of risks. Copyright Springer 2005

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  • Eric Langlais, 2005. "Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption," Theory and Decision, Springer, vol. 59(1), pages 43-50, August.
    • Handle: RePEc:kap:theord:v:59:y:2005:i:1:p:43-50
    DOI: 10.1007/s11238-005-7303-9
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    3. Eric LANGLAIS, 2009. "Deterrence Of A Criminal Team: How To Rely On Its Members' Short Comings ?," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(1(7)_ Spr).
    4. Neji Saidi, 2022. "Willingness to pay, surplus and Insurance policy under dual theory," Papers 2204.04794, arXiv.org.
    5. Courbage, Christophe & Rey, Béatrice & Treich, Nicolas, 2013. "Prevention and precaution," TSE Working Papers 13-445, Toulouse School of Economics (TSE).
    6. Amy K. Donahue, 2014. "Risky Business: Willingness to Pay for Disaster Preparedness," Public Budgeting & Finance, Wiley Blackwell, vol. 34(4), pages 100-119, December.
    7. Sarah Bensalem & Nicolás Hernández Santibáñez & Nabil Kazi-Tani, 2019. "Prevention efforts, insurance demand and price incentives under coherent risk measures," Working Papers hal-01983433, HAL.
    8. Bensalem, Sarah & Santibáñez, Nicolás Hernández & Kazi-Tani, Nabil, 2020. "Prevention efforts, insurance demand and price incentives under coherent risk measures," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 369-386.
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