Who should exert more effort? Risk aversion, downside risk aversion and optimal prevention

Richard Peter ()
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Richard Peter: University of Iowa

Economic Theory, 2021, vol. 71, issue 4, No 1, 1259-1281

Abstract: Abstract I provide new results on how risk preferences affect optimal prevention. I identify a comparative risk aversion and a comparative downside risk aversion effect and highlight those cases where both effects are aligned. Alignment depends on a probability threshold, which, in turn, only depends on the preferences of the benchmark agent. This allows to define an entire class of decision-makers who all share the same comparative static prediction relative to the reference agent. I relate my findings to different intensity measures of downside risk aversion and apply them to parametric preference changes and specific classes of utility functions.

Keywords: Risk aversion; Downside risk aversion; Prevention; Self-protection (search for similar items in EconPapers)
JEL-codes: D61 D81 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s00199-020-01282-0

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