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The Generalised Extreme Value Distribution as Utility Function

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  • Denis Conniffe

    () (Economics, National University of Ireland, Maynooth)

Abstract

The idea that probability distribution functions could provide appropriate mathematical forms for utility functions representing risk aversion is of respectable antiquity. But the relatively few examples that have appeared in the economics literature have displayed quite restrictive risk aversion properties. This paper examines the potential of the generalised extreme value (GEV) distribution as utility function, showing it possesses considerable flexibility as regards risk aversion properties, even in its single parameter form. The paper concludes that the GEV utility function is worth considering for applications in cases where parametric parsimony matters.

Suggested Citation

  • Denis Conniffe, 2007. "The Generalised Extreme Value Distribution as Utility Function," Economics, Finance and Accounting Department Working Paper Series n1780907, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  • Handle: RePEc:may:mayecw:n1780907
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    References listed on IDEAS

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    1. repec:eee:reensy:v:129:y:2014:i:c:p:36-45 is not listed on IDEAS
    2. Jack Meyer, 2010. "Representing risk preferences in expected utility based decision models," Annals of Operations Research, Springer, vol. 176(1), pages 179-190, April.

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