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Substituting one risk increase for another: Extension and application

Jianli Wang, Hongxia Wang and Jingyuan Li

Economics Letters, 2025, vol. 247, issue C

Abstract: The paper theoretically extends the idea of the rate of substitution of one risk change for another. We provide a generalized definition of the rate of substitution between two risk changes beginning with different starting risks. It is demonstrated that our generalized version can be used to compare two agents’ attitudes towards risk according to the Ross risk averse order. Moreover, we find that it provides additional insight into the probability premium approach to comparative risk aversion.

Keywords: Rate of substitution; Ross risk aversion; Risk increases; Risk apportionment (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000229

DOI: 10.1016/j.econlet.2025.112185

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