Full-text VersionPublisher’s Version
Higher-order risk attitudes toward correlationSocial Science Research Network
- higher-order risk attitudes,
- stochastic dominance dependence,
AbstractHigher-order risk attitudes other than risk aversion (e.g., prudence and temperance) play vital roles both in theoretical and empirical work. While the literature has mainly focused on how they entail a preference for combining “good” outcomes with “bad” outcomes, we consider here an alternative approach which relates higher-order risk attitudes to the sign of correlation. The theoretical result in this paper proposes new insights into economic and financial applications such as risk aversion in the presence of another risk, bivariate stochastic dominance and justifying the first-order approach to moral hazard principal-agent problems.
Copyright © 2013 Social Science Electronic Publishing, Inc
Access to external full text or publisher's version may require subscription.
Citation InformationLi, J. (2013). Higher-order risk attitudes toward correlation. Social Science Research Network. Retrieved from http://dx.doi.org/10.2139/ssrn.2270995