Mixed Risk Aversion and Preference for Risk Disaggregation
In a recent paper entitled “Putting Risk in its Proper Place”, Eeckhoudt and Schlesinger (2006) established a theorem linking the sign of the n-th derivative of an agent’s utility function to her preferences among pairs of simple lotteries. We characterize these lotteries and show that, in a given pair, they only differ by their moments of order greater than or equal to n. When the n-th derivative of the utility function is positive (negative) and n is odd (even), the agent prefers a lottery with higher (lower) n+2p-th moments for p belonging to the set of positive integers. This result links the preference for disaggregation of risks across states of nature and the structure of moments preferred by mixed risk averse agents. It can be viewed as a generalization of a proposition appearing in Ekern (1980) which focused only on the differences in the n-th moments.
|Date of creation:||2008|
|Contact details of provider:|| Postal: 61, Avenue de la Forêt Noire, F-67085 Strasbourg Cedex|
Phone: (33) 3 90 41 41 30
Fax: (33) 3 90 41 40 50
Web page: http://ifs.unistra.fr/large
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:lar:wpaper:2008-17. 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: (Christophe J. Godlewski)
If references are entirely missing, you can add them using this form.