Mixed Risk Aversion and Preference for Risk Disaggregation
Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg
In a recent paper entitled “Putting Risk in its Proper Place”, Eeckhoudt and Schlesinger (2006) established a theorem linking the sign of the n-th derivative of an agent’s utility function to her preferences among pairs of simple lotteries. We characterize these lotteries and show that, in a given pair, they only differ by their moments of order greater than or equal to n. When the n-th derivative of the utility function is positive (negative) and n is odd (even), the agent prefers a lottery with higher (lower) n+2p-th moments for p belonging to the set of positive integers. This result links the preference for disaggregation of risks across states of nature and the structure of moments preferred by mixed risk averse agents. It can be viewed as a generalization of a proposition appearing in Ekern (1980) which focused only on the differences in the n-th moments.
Keywords: Risk apportionment; mixed risk aversion; prudence; temperance. (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-upt
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Persistent link: http://EconPapers.repec.org/RePEc:lar:wpaper:2008-17
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