Standardized Variables, Risks and Preference
This paper examines the expected utility effects of adding one risk to another. In comparison to related works, it places fewer restrictions on utilities and more structure on risky asset returns. The paper, entailing little loss of generality, uses discrete variables defined on a common domain (hereafter standardized variables) to find sufficient conditions for either of two (dependent or independent) variables to dominate their sum in the second degree. It then finds (higher order) sufficient conditions for either of the variables to dominate their sum in the third degree. While utilities are only restricted to be increasing concave, the expected utility differences for the respective risk positions are the same as if the investors were respectively proper or standard risk averse (Pratt-Zeckhauser , Kimball .
|Date of creation:||Jul 1994|
|Contact details of provider:|| Postal: Kingston, Ontario, K7L 3N6|
Phone: (613) 533-2250
Fax: (613) 533-6668
Web page: http://qed.econ.queensu.ca/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:qed:wpaper:907. 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: (Mark Babcock)
If references are entirely missing, you can add them using this form.