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Article
The monetary utility premium and interpersonal comparisons
Economics Letters
  • Jingyuan LI, Lingnan University, Hong Kong
  • Liqun LIU, Texas A&M University, United States
Document Type
Journal article
Publication Date
11-1-2014
Keywords
  • Utility premium,
  • Risk aversion,
  • Higher-degree risk aversion,
  • Comparative risk aversion
Disciplines
Abstract

The utility premium is generally defined as the pain or reduction in expected utility caused by an nth-degree risk increase, where n≥2. While it is a very useful concept in understanding a decision maker’s choice in uncertain situations, the utility premium is not interpersonally comparable. This note shows that the monetary utility premium–the utility premium divided by the expected marginal utility at the random starting wealth–is interpersonally comparable, and the comparison is characterized by Ross more risk aversion of the corresponding degree.

DOI
10.1016/j.econlet.2014.09.006
E-ISSN
18737374
Publisher Statement

Copyright © 2014 Elsevier B.V.

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Citation Information
Li, J., & Liu, L. (2014). The monetary utility premium and interpersonal comparisons. Economics Letters, 152(2), 257-260. doi: 10.1016/j.econlet.2014.09.006