Incremental Risk Vulnerability
We present a necessary and sufficient condition on an agent’s utility function for a simple mean preserving spread in an independent background risk to increase the agent’s risk aversion (incremental risk vulnerability). Gollier and Pratt (1996) have shown that declining and convex risk aversion as well as standard risk aversion are sufficient for risk vulnerability. We show that these conditions are also sufficient for incremental risk vulnerability. In addition, we present sufficient conditions for a restricted set of stochastic increases in an independent background risk to increase risk aversion.
|Date of creation:||23 Sep 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://cofe.uni-konstanz.de
More information through EDIRC
|Order Information:|| Web: http://cofe.uni-konstanz.de Email: |
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.:
- Miles S. Kimball, 1991.
"Standard Risk Aversion,"
NBER Technical Working Papers
0099, National Bureau of Economic Research, Inc.
- Donald C. Keenan & Arthur Snow, 2003. "Locally Greater Vulnerability to Background Risk," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 28(2), pages 161-172, December.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January.
- EECKHOUDT, Louis & Christian GOLLIER & Harris SCHLESINGER, 1994.
"Changes in Background Risk and Risk Taking Behavior,"
005, Risk and Insurance Archive.
- Eeckhoudt, Louis & Gollier, Christian & Schlesinger, Harris, 1996. "Changes in Background Risk and Risk-Taking Behavior," Econometrica, Econometric Society, vol. 64(3), pages 683-89, May.
- Donald J. Meyer & Jack Meyer, 1998. "Changes in Background Risk and the Demand for Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 23(1), pages 29-40, June.
- Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July.
- Thomas Eichner & Andreas Wagener, 2003. "Variance Vulnerability, Background Risks, and Mean-Variance Preferences," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 28(2), pages 173-184, December.
- Gollier, Christian & John W. PRATT, 1993. "Weak Proper Risk Aversion And The Tempering Effect of Background Risk," Working Papers 018, Risk and Insurance Archive.
- Kihlstrom, Richard E & Romer, David & Williams, Steve, 1981. "Risk Aversion with Random Initial Wealth," Econometrica, Econometric Society, vol. 49(4), pages 911-20, June.
- Franke, Gunter & Stapleton, Richard C. & Subrahmanyam, Marti G., 1998. "Who Buys and Who Sells Options: The Role of Options in an Economy with Background Risk," Journal of Economic Theory, Elsevier, vol. 82(1), pages 89-109, September.
- Nachman, David C., 1982. "Preservation of "more risk averse" under expectations," Journal of Economic Theory, Elsevier, vol. 28(2), pages 361-368, December.
When requesting a correction, please mention this item's handle: RePEc:knz:cofedp:0508. 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: (Ingmar Nolte)The email address of this maintainer does not seem to be valid anymore. Please ask Ingmar Nolte to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.