When can expected utility handle first-order risk aversion?American Risk and Insurance Association (ARIA) 2012 Annual Meeting
- Expected utility theory; Örst-order conditional dependent risk aversion; background risk; equity premium puzzle; social security; public investment; consumption risk
AbstractExpected 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.
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Citation InformationDionne, G., & Li, J. (2012, Aug). When can expected utility handle first-order risk aversion? Paper presented at American Risk and Insurance Association (ARIA) 2012 Annual Meeting, Minnesota, US. Abstract retrieved from http://www.aria.org/meetings/2012%20Meetings/5B-When.pdf?.pdf?.pdf