Self-Protection with Multiplicative Foreground and Background Risks

Christoph Heinzel ()
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Christoph Heinzel: SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement, INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: Occasional treatments of self-protection in relation to multiplicative risk highlight differences to additive risk. This paper studies the prevalence, sources, and implications of such differences along various modeling features. Preference conditions vary as soon as the foreground risk component in the utility argument is multiplicative to mitigation effort or background risk. Only models with mitigation cost in utility terms and no background risk show no structural difference. In a numerical example for monetary cost, the same decision maker, who raises loss-risk mitigation with additive background risk, uniformly reduces mitigation with background risk, whenever multiplicative risk is present, in the foreground or the background.

Keywords: Self-protection; Multiplicative risk; Background risk (search for similar items in EconPapers)
Date: 2024-06-27
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Published in Journées Internationales du Risque, Iriaf, Université de Poitiers, Jun 2024, Niort, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04703428

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