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The utility premium of Friedman and Savage, comparative risk aversion, and comparative prudence

James Huang and Richard Stapleton

Economics Letters, 2015, vol. 134, issue C, 34-36

Abstract: We show that the utility premium of Friedman and Savage can be used to explain comparative risk aversion and comparative prudence. More precisely, we show that the greater the risk aversion measure, the greater a risk’s utility premium normalized by the marginal utility and that the greater the prudence measure, the greater the utility premium for disaggregating a certain loss of wealth and a zero-mean risk normalized by the utility function’s second derivative.

Keywords: Utility premium; Comparative risk aversion; Comparative prudence (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:eee:ecolet:v:134:y:2015:i:c:p:34-36