The probability premium: A graphical representation
Louis Eeckhoudt and
Roger Laeven ()
Economics Letters, 2015, vol. 136, issue C, 39-41
We illustrate that Pratt’s probability premium can be given a simple graphical representation allowing a direct comparison to the equivalent but more prevalent concept of risk premium under expected utility. We also show that the probability premium’s graphical representation under the dual theory mimics that of the risk premium under expected utility.
Keywords: Risk premium; Probability premium; Expected utility; Dual theory; Risk aversion (search for similar items in EconPapers)
JEL-codes: D81 G10 G20 (search for similar items in EconPapers)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:ecolet:v:136:y:2015:i:c:p:39-41
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