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Unpublished Paper
Risk aversion with two risks : a theoretical extension
Journal of Mathematical Economics
  • Jingyuan LI, Lingnan University, Hong Kong
  • Dongri LIU, Lingnan University, Hong Kong
  • Jianli WANG, Nanjing University of Aeronautics and Astronautics
Document Type
Journal article
Publication Date
3-1-2016
Keywords
  • Risk aversion,
  • Risk apportionment,
  • Background risk,
  • Expectation dependence,
  • Bivariate utility function
Disciplines
Abstract

We identify new conditions ensuring risk aversion in the sense of Arrow–Pratt in a two-argument utility framework in which a financial risk is accompanied by a background risk. Our results generalize the findings of Finkelshtain et al. (1999). We consider a sequence of possible dependence among risks. We also provide an empirical example showing that second-order expectation dependence cannot be ignored in determining risk aversion with two risks.

DOI
10.1016/j.jmateco.2016.01.002
Scopus EID
https://www.scopus.com/inward/record.uri?eid=2-s2.0-84962575766&doi=10.1016%2fj.jmateco.2016.01.002&partnerID=40&md5=74e8e7527191e745c4a973ced5bcfc4c
E-ISSN
18731538
Publisher Statement
Copyright © 2016 Elsevier B.V. All rights reserved.
Full-text Version
Publisher’s Version
Citation Information
Li, J. (2016). Risk aversion with two risks : a theoretical extension. Journal of Mathematical Economics, 63, 100-105. doi: 10.1016/j.jmateco.2016.01.002