- Expected utility theory; Örst-order conditional dependent risk aversion; background risk; equity premium puzzle; social security; public investment; consumption risk
Expected utility functions are limited to second-order (conditional) risk aversion, while non-expected utility functions can exhibit either Örst-order or second-order (conditional) risk aversion. We extend the concept of orders of conditional risk aversion to orders of conditional dependent risk aversion. We show that Örst-order conditional dependent risk aversion is consistent with the framework of the expected utility hypothesis. Our theoretical result proposes new insights into some economic and Önancial applications.