Proper risk behavior

Kais Dachraoui, Georges Dionne (), Louis Eeckhoudt and Philippe Godfroid
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Kais Dachraoui: HEC Montreal, Canada Research Chair in Risk Management
Louis Eeckhoudt: Université Catholique de Louvain
Philippe Godfroid: Université Catholique de Louvain

No 99-1, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

Abstract: How does risk aversion affect choices when expenses improve probabilities? Attempts to answer this question in the literature found an endogenous switching probability. In this paper we introduce a new concept of comparative attitude to risk, namely proper risk behavior and determine ½ as the threshold probability over which a more proper risk behavior agent becomes a gambler. We consider applications related to self-protection and willingness to pay. We give a sufficient condition for analytic comparative proper risk behavior and show that all results hold in the presence of a background risk.

Keywords: Mixed risk aversion; proper risk aversion; proper risk behavior; self-protection; willingness to pay; background risk; principal-agent (search for similar items in EconPapers)
JEL-codes: D80 (search for similar items in EconPapers)
Pages: 6 pages
Date: 1999-06-01
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Proper risk behavior (1999)
Working Paper: Proper Risk Behavior (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:crcrmw:1999_001

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