Fear of Loss and Happiness of Win: Properties and Applications

Jingyuan Li

Journal of Risk & Insurance, 2010, vol. 77, issue 4, 749-766

Abstract: This article proposes two coefficients, “fear of loss” (FL) and “happiness of win” (HW), to capture the variation of risk attitude with respect to wealth. Several properties of interpersonal comparisons of FL and HW are achieved. We present three applications in the default risk bargaining problem (Tibiletti, 2006) to demonstrate that these properties can deliver more shortcut bargaining conditions and unambiguous comparative static results in situations involving interpersonal risk exchanges. We show that FL and HW coefficients are instrumental in explaining the comparative diffidence between an insurer and an insured.

Date: 2010
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https://doi.org/10.1111/j.1539-6975.2010.01364.x

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