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Decreasing downside risk aversion and background risk

Author

Listed:
  • David Crainich

    (LEM - Lille - Economie et Management - Université de Lille, Sciences et Technologies - CNRS - Centre National de la Recherche Scientifique, IÉSEG School Of Management [Puteaux])

  • Louis Eeckhoudt

    (IÉSEG School Of Management [Puteaux], UCL - Université Catholique de Louvain = Catholic University of Louvain)

  • Olivier Le Courtois

    (EM - EMLyon Business School)

Abstract

In this paper, we indicate that risk vulnerability can be associated with the concept of downside risk aversion (DRA) and an assumption about its behavior, namely that it is decreasing in wealth. Specifically, decreasing downside risk aversion in the Arrow-Pratt and Ross senses are respectively necessary and sufficient for a background risk to raise the aversion to other independent risks.

Suggested Citation

  • David Crainich & Louis Eeckhoudt & Olivier Le Courtois, 2014. "Decreasing downside risk aversion and background risk," Post-Print hal-02313171, HAL.
    • Handle: RePEc:hal:journl:hal-02313171
    DOI: 10.1016/j.jmateco.2014.05.009
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    Cited by:

    1. Crainich, David & Eeckhoudt, Louis & Le Courtois, Olivier, 2017. "Health and portfolio choices: A diffidence approach," European Journal of Operational Research, Elsevier, vol. 259(1), pages 273-279.
    2. Christian Gollier & Miles S. Kimball, 2018. "Toward a Systematic Approach to the Economic Effects of Risk: Characterizing Utility Functions," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 85(2), pages 397-430, June.

    More about this item

    JEL classification:

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

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