IDEAS home Printed from https://ideas.repec.org/p/rsm/riskun/r04_2.html
   My bibliography  Save this paper

Supermodularity and Risk Aversion

Author

Listed:
  • John Quiggin

    () (Department of Economics, University of Queensland)

  • Robert G. Chambers

    () (Dept of Agricultural and Resource Economics, University of Maryland, College Park)

Abstract

In this paper, we consider the relationship between supermodularity and risk aversion. We show that supermodularity of the certainty equivalent implies that the certainty equivalent of any random variable is less than its mean. We also derive conditions under which supermodularity of the certainty equivalent is equivalent to aversion to mean-preserving spreads in the sense of Rothschild and Stiglitz.

Suggested Citation

  • John Quiggin & Robert G. Chambers, 2004. "Supermodularity and Risk Aversion," Risk & Uncertainty Working Papers WPR04_2, Risk and Sustainable Management Group, University of Queensland.
  • Handle: RePEc:rsm:riskun:r04_2
    as

    Download full text from publisher

    File URL: http://www.uq.edu.au/rsmg/WP/WPR04_2.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
    2. Machina, Mark J., 1984. "Temporal risk and the nature of induced preferences," Journal of Economic Theory, Elsevier, vol. 33(2), pages 199-231, August.
    3. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    4. Blackorby, Charles & Davidson, Russell & Donaldson, David, 1977. "A Homiletic Exposition of the Expected Utility Hypothesis," Economica, London School of Economics and Political Science, vol. 44(176), pages 351-358, November.
    5. Quiggin, John & Chambers, Robert G, 1998. "Risk Premiums and Benefit Measures for Generalized-Expected-Utility Theories," Journal of Risk and Uncertainty, Springer, vol. 17(2), pages 121-137, November.
    6. Susan Athey, 2002. "Monotone Comparative Statics under Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 187-223.
    7. Boland, Philip J. & Proschan, Frank, 1988. "Multivariate arrangement increasing functions with applications in probability and statistics," Journal of Multivariate Analysis, Elsevier, vol. 25(2), pages 286-298, May.
    8. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    9. David A. Hennessy & Harvey E. Lapan, 2003. "A Definition of 'More Systematic Risk' with Some Welfare Implications," Economica, London School of Economics and Political Science, vol. 70(279), pages 493-507, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marta Cardin & Maddalena Manzi, 2006. "A copula-based approach to aggregation functions," Working Papers 139, Department of Applied Mathematics, Università Ca' Foscari Venezia.

    More about this item

    Keywords

    risk aversion; Schur concavity; supermodularity;

    JEL classification:

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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rsm:riskun:r04_2. 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: (David Adamson). General contact details of provider: http://edirc.repec.org/data/rsmuqau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.