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Comparative risk apportionment

Author

Listed:
  • Paan Jindapon

    (University of Alabama)

  • Liqun Liu

    (Texas A&M University)

  • William S. Neilson

    (University of Tennessee)

Abstract

A decision maker who would rather apportion an independent risk in a state with a good lottery than in a state with a bad lottery is said to have a preference for risk apportionment (Eeckhoudt and Schlesinger in Am Econ Rev 96:280–289, 2006). In this paper, we propose a measure for the strength of nth-degree risk apportionment preference based on Pratt’s probability premium (Pratt in Econometrica 32:122–136, 1964). Under expected utility theory, we analyze the relationship between a greater preference for risk apportionment and both the Ross and Arrow–Pratt versions of comparative risk aversion.

Suggested Citation

  • Paan Jindapon & Liqun Liu & William S. Neilson, 2021. "Comparative risk apportionment," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 91-112, April.
    • Handle: RePEc:spr:etbull:v:9:y:2021:i:1:d:10.1007_s40505-021-00200-4
    DOI: 10.1007/s40505-021-00200-4
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    References listed on IDEAS

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    Cited by:

    1. Hammitt, James K., 2022. "Downside Risk Aversion vs Decreasing Absolute Risk Aversion: An Intuitive Exposition," TSE Working Papers 22-1359, Toulouse School of Economics (TSE).
    2. James K. Hammitt, 2023. "Downside risk aversion vs decreasing absolute risk aversion: an intuitive exposition," Theory and Decision, Springer, vol. 95(1), pages 1-10, July.

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    More about this item

    Keywords

    Risk apportionment; Risk aversion; Downside risk aversion; Prudence;
    All these keywords.

    JEL classification:

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

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