More pessimism than greediness: a characterization of monotone risk aversion in the Rank-Dependent Expected Utility model
This paper studies monotone risk aversion, the aversion to monotone, meanpreserving increase in risk (Quiggin ), in the Rank Dependent Expected Utility (RDEU) model. This model replaces expected utility by another functional, characterized by twofunctions, a utility function u in conjunction with a probability-perception function f.Monotone mean-preserving increases in risk are closely related to the notion of comparative dispersion introduced by Bickel & Lehmann [3, 4] in Non-parametric Statistics. We present a characterization of the pairs (u; f) of monotone risk averse decision makers, based on an index of greediness Gu of the utility function u and an index of pessimism Pf of the probability perception function f: the decision maker is monotone risk averse if and onlyif Pf exceeds Gu. A novel element is that concavity of u is not necessary. In fact, u must be concave only if Pf = 1.
|Date of creation:||2005|
|Date of revision:|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00211906|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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.:
- Chateauneuf, Alain & Cohen, Michele & Meilijson, Isaac, 2004.
"Four notions of mean-preserving increase in risk, risk attitudes and applications to the rank-dependent expected utility model,"
Journal of Mathematical Economics,
Elsevier, vol. 40(5), pages 547-571, August.
- Alain Chateauneuf & Michèle Cohen & Isaac Meilijson, 2004. "Four notions of mean preserving increase in risk, risk attitudes and applications to the Rank-Dependent Expected Utility model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00212281, HAL.
- Quiggin John & Wakker Peter, 1994.
"The Axiomatic Basis of Anticipated Utility: A Clarification,"
Journal of Economic Theory,
Elsevier, vol. 64(2), pages 486-499, December.
- Quiggin, J. & Wakker, P.P., 1992. "The Axiomatic Basis of Anticipated Utility : A Clarification," Discussion Paper 1992-3, Tilburg University, Center for Economic Research.
- Quiggin, J. & Wakker, P., 1992. "The Axiomatic Basis of Anticipated Utility: A Clarification," Papers 9203, Tilburg - Center for Economic Research.
- Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
- Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
- Chateauneuf, Alain & Cohen, Michele, 1994. "Risk Seeking with Diminishing Marginal Utility in a Non-expected Utility Model," Journal of Risk and Uncertainty, Springer, vol. 9(1), pages 77-91, July.
When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-00211906. 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: (CCSD)
If references are entirely missing, you can add them using this form.