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Repetitive risk aversion

  • Parkash Chander

    ()

This paper introduces and investigates the concept of repetitive risk aversion. The risk aversion of an increasing and concave utility function is repetitive if the fear of ruin, which measures agent's aversion to risking his entire income, is also increasing and concave. This is shown to be equivalent to the behaviorally meaningful condition that the risk premium is increasing at a non-increasing rate with the size of the bet. We find an additional justification for mixed risk aversion, which is known to be stronger than standard (and thus proper) risk aversion, in terms of this concept. We discuss several economic applications of repetitive risk aversion.

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File URL: http://hdl.handle.net/10.1007/s00199-005-0022-1
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Article provided by Springer in its journal Economic Theory.

Volume (Year): 29 (2006)
Issue (Month): 3 (November)
Pages: 701-711

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Handle: RePEc:spr:joecth:v:29:y:2006:i:3:p:701-711
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  9. Chander, Parkash & Wilde, Louis L, 1998. "A General Characterization of Optimal Income Tax Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 165-83, January.
  10. CHANDER, Parkash, 2000. "A simple measure of risk aversion in the large and an application," CORE Discussion Papers 2000041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Burgos, Albert & Grant, Simon & Kajii, Atsushi, 2002. "Bargaining and Boldness," Games and Economic Behavior, Elsevier, vol. 38(1), pages 28-51, January.
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