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Even (mixed) risk lovers are prudent

Author

Listed:
  • David Crainich

    () (CNRS-LEM and IESEG School of Management)

  • Louis Eeckhoudt

    (IESEG School of Management (LEM-CNRS) and CORE (Université Catholique de Louvain))

  • Alain Trannoy

    (Aix-Marseille School of Economics, EHESS)

Abstract

The purpose of this note is to analyze properties of the risk lovers? utility function beyond the positive sign of its second order derivative. We show that??contrarily to a priori beliefs??risk lovers are prudent and are willing to accumulate precautionary savings.
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Suggested Citation

  • David Crainich & Louis Eeckhoudt & Alain Trannoy, 2011. "Even (mixed) risk lovers are prudent," Working Papers 2011-ECO-05, IESEG School of Management.
  • Handle: RePEc:ies:wpaper:e201105
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    References listed on IDEAS

    as
    1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    2. Menezes, Carmen F. & Wang, X.Henry, 2005. "Increasing outer risk," Journal of Mathematical Economics, Elsevier, vol. 41(7), pages 875-886, November.
    3. Eeckhoudt, Louis & Schlesinger, Harris & Tsetlin, Ilia, 2009. "Apportioning of risks via stochastic dominance," Journal of Economic Theory, Elsevier, vol. 144(3), pages 994-1003, May.
    4. Cary Deck & Harris Schlesinger, 2010. "Exploring Higher Order Risk Effects," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1403-1420.
    5. Caballe, Jordi & Pomansky, Alexey, 1996. "Mixed Risk Aversion," Journal of Economic Theory, Elsevier, vol. 71(2), pages 485-513, November.
    6. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
    7. Charles N. Noussair & Stefan T. Trautmann & Gijs van de Kuilen, 2014. "Higher Order Risk Attitudes, Demographics, and Financial Decisions," Review of Economic Studies, Oxford University Press, vol. 81(1), pages 325-355.
    8. Ekern, Steinar, 1980. "Increasing Nth degree risk," Economics Letters, Elsevier, vol. 6(4), pages 329-333.
    9. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    10. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
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    More about this item

    JEL classification:

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

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