Risk aversion with two risks: A theoretical extension
Jingyuan Li (),
Dongri Liu and
Journal of Mathematical Economics, 2016, vol. 63, issue C, 100-105
We identify new conditions ensuring risk aversion in the sense of Arrow–Pratt in a two-argument utility framework in which a financial risk is accompanied by a background risk. Our results generalize the findings of Finkelshtain et al. (1999). We consider a sequence of possible dependence among risks. We also provide an empirical example showing that second-order expectation dependence cannot be ignored in determining risk aversion with two risks.
Keywords: Risk aversion; Risk apportionment; Background risk; Expectation dependence; Bivariate utility function (search for similar items in EconPapers)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:mateco:v:63:y:2016:i:c:p:100-105
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