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:|
|Note:||In : Mathematical Social Sciences, 58, 1-7, 2009|
|Contact details of provider:|| Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)|
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.:
- 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.
- 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 257-258, February.
- Chiu, W.Henry & Madden, Paul, 2007. "Crime, punishment, and background risks," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 543-555, April.
- 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.
- Choi, E. K. & Menezes, C. F., 1985.
"On the magnitude of relative risk aversion,"
Elsevier, vol. 18(2-3), pages 125-128.
- 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 721-736, August.
- Louis Eeckhoudt & Harris Schlesinger, 2006.
"Putting Risk in Its Proper Place,"
American Economic Review,
American Economic Association, vol. 96(1), pages 280-289, March.
- Louis Eeckhoudt & Harris Schlesinger, 2005. "Putting Risk in its Proper Place," CESifo Working Paper Series 1462, CESifo Group Munich.
- L. Eeckhoudt & H. Schlesinger, 2006. "Putting risk in its proper place," Post-Print hal-00283170, HAL.
- EECKHOUDT, Louis & SCHLESINGER, Harris, "undated". "Putting risk in its proper place," CORE Discussion Papers RP 1871, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Franke, Günter & Schlesinger, Harris & Stapleton, Richard C., 2002.
"Multiplicative background risk,"
Discussion Papers, various Research Units
FS IV 02-06, Social Science Research Center Berlin (WZB).
- 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.
- Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
- 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.
- 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.
- F. H. Hahn, 1970. "Savings and Uncertainty," Review of Economic Studies, Oxford University Press, vol. 37(1), pages 21-24.
- 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.
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.