Precautionary Effort Investment under Cross Risk Aversion

Tao Yuqing (), Mei Jie (), Cheng Wen () and Zou Sijie ()
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Tao Yuqing: Department of Teacher Education, Maanshan Teacher’s College, Ma’anshan, 243041, China
Mei Jie: Class 6, Grade 1, No. 1 Middle School, Affiliated to Central China Normal University, Wuhan, China
Cheng Wen: Department of Risk Management, China Huarong Asset Management Co., Ltd, Beijing, 100033, China
Zou Sijie: Department of Finance, Shandong Branch, China Three Gorges New Energy Co., Ltd, Jinan, 277000, China

Journal of Systems Science and Information, 2019, vol. 7, issue 4, 344-358

Abstract: This paper deals with the effort problem under multiple risks in bivariate utility setting. We identify preference conditions to insure positive or negative effect of a background variable uncertainty on effort in the presence of other risks. We allow for the simultaneous presence of wealth and background variable uncertainties. We investigate the joint effect of two-source uncertainties on effort when two risks are either small or positive quadrant dependent. Our work extends the previous model of effort to bivariate utility framework and presents new insights into the issue of optimal effort under uncertainty.

Keywords: precautionary effort; risks correlation; risk aversion; cross prudence; decision-making under uncertainty (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jossai:v:7:y:2019:i:4:p:344-358:n:4

DOI: 10.21078/JSSI-2019-344-15

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