The values of relative risk aversion and prudence: A context-free interpretation
In this paper we apply to multiplicative lotteries the idea of preference for "harm disaggregation" that was used for additive lotteries in order to interpret the signs of successive derivatives of a utility function. In this way, we can explain in general terms why the values of the coefficients of relative risk aversion and relative prudence are usually compared respectively to 1 and 2. We also show how these values partition the sets of risk averse and/or prudent decision makers into two subgroups.
(This abstract was borrowed from another version of this item.)
|Date of creation:|
|Date of revision:|
|Note:||In : Mathematical Social Sciences, 58, 1-7, 2009|
|Contact details of provider:|| Postal: |
Fax: +32 10474304
Web page: http://www.uclouvain.be/core
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:knz:cofedp:0305 is not listed on IDEAS
- Kimball, Miles S, 1990.
"Precautionary Saving in the Small and in the Large,"
Econometric Society, vol. 58(1), pages 53-73, January.
- Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
- Mitchell, Douglas W, 1994. "Relative Risk Aversion with Arrow-Debreu Securities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 257-58, February.
- Cheng, Hsueh-Cheng & Magill, Michael J P & Shafer, Wayne J, 1987. "Some Results on Comparative Statics under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 493-507, June.
- Chiu, W.Henry & Madden, Paul, 2007. "Crime, punishment, and background risks," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 543-555, April.
- EECKHOUDT, Louis & SCHLESINGER, Harris, .
"Putting risk in its proper place,"
CORE Discussion Papers RP
-1871, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Donald Meyer & Jack Meyer, 2005. "Relative Risk Aversion: What Do We Know?," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 243-262, December.
- Günter Franke & Harris Schlesinger & Richard C. Stapleton, 2006.
"Multiplicative Background Risk,"
INFORMS, vol. 52(1), pages 146-153, January.
- Choi, Gyemyung & Kim, Iltae & Snow, Arthur, 2001. "Comparative Statics Predictions for Changes in Uncertainty in the Portfolio and Savings Problems," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 61-72, January.
- Choi, E. Kwan & Menezes, Carmen F., 1985.
"On the Magnitude of Relative Risk Aversion,"
Staff General Research Papers
10604, Iowa State University, Department of Economics.
- Hahn, F H, 1970. "Savings and Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 37(1), pages 21-24, January.
- White, Lucy, 2008. "Prudence in bargaining: The effect of uncertainty on bargaining outcomes," Games and Economic Behavior, Elsevier, vol. 62(1), pages 211-231, January.
- Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
- Hadar, Josef & Seo, Tae Kun, 1990. "The Effects of Shifts in a Return Distribution on Optimal Portfolios," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 721-36, August.
- Peter C. Fishburn & R. Burr Porter, 1976. "Optimal Portfolios with One Safe and One Risky Asset: Effects of Changes in Rate of Return and Risk," Management Science, INFORMS, vol. 22(10), pages 1064-1073, June.
When requesting a correction, please mention this item's handle: RePEc:cor:louvrp:-2162. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS)
If references are entirely missing, you can add them using this form.