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Moment characterization of higher-order risk preferences

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  • Sebastian Ebert

Abstract

This article presents a characterization of higher-order risk preferences such as prudence or temperance in terms of statistical moments. Our results, which are generalizations of Roger (Theory Decis, 70(1):27–44, 2011 ) and Ekern (Econ Lett, 6(4), 329–333, 1980 ), give a better understanding of how higher-order risk preferences relate to skewness preference and kurtosis aversion. While they are not based on expected utility theory, an implication within that theory is that all commonly used utility functions exhibit skewness preference and kurtosis aversion. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Sebastian Ebert, 2013. "Moment characterization of higher-order risk preferences," Theory and Decision, Springer, vol. 74(2), pages 267-284, February.
    • Handle: RePEc:kap:theord:v:74:y:2013:i:2:p:267-284
    DOI: 10.1007/s11238-012-9307-6
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    References listed on IDEAS

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    1. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
    2. Cary Deck & Harris Schlesinger, 2010. "Exploring Higher Order Risk Effects," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1403-1420.
    3. Charles N. Noussair & Stefan T. Trautmann & Gijs van de Kuilen, 2014. "Higher Order Risk Attitudes, Demographics, and Financial Decisions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(1), pages 325-355.
    4. Sebastian Ebert & Daniel Wiesen, 2011. "Testing for Prudence and Skewness Seeking," Management Science, INFORMS, vol. 57(7), pages 1334-1349, July.
    5. Patrick Roger, 2011. "Mixed risk aversion and preference for risk disaggregation: a story of moments," Theory and Decision, Springer, vol. 70(1), pages 27-44, January.
    6. Ekern, Steinar, 1980. "Increasing Nth degree risk," Economics Letters, Elsevier, vol. 6(4), pages 329-333.
    7. Sebastian Ebert & Daniel Wiesen, 2014. "Joint measurement of risk aversion, prudence, and temperance," Journal of Risk and Uncertainty, Springer, vol. 48(3), pages 231-252, June.
    8. Caballe, Jordi & Pomansky, Alexey, 1996. "Mixed Risk Aversion," Journal of Economic Theory, Elsevier, vol. 71(2), pages 485-513, November.
    9. Patrick L. Brockett & Linda L. Golden, 1987. "A Class of Utility Functions Containing all the Common Utility Functions," Management Science, INFORMS, vol. 33(8), pages 955-964, August.
    10. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    11. Lajeri-Chaherli, Fatma, 2004. "Proper prudence, standard prudence and precautionary vulnerability," Economics Letters, Elsevier, vol. 82(1), pages 29-34, January.
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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