Concave/convex weighting and utility functions for risk: A new light on classical theorems

Peter Wakker and Jingni Yang

Insurance: Mathematics and Economics, 2021, vol. 100, issue C, 429-435

Abstract: This paper analyzes concave and convex utility and probability distortion functions for decision under risk (law-invariant functionals). We characterize concave utility for virtually all existing models, and concave/convex probability distortion functions for rank-dependent utility and prospect theory in complete generality, through an appealing and well-known condition (convexity of preference, i.e., quasiconcavity of the functional). Unlike preceding results, we do not need to presuppose any continuity, let be differentiability.

Keywords: Convex preferences; Quasiconcave utility; Risk aversion; Rank-dependent utility (search for similar items in EconPapers)
JEL-codes: C60 D81 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:100:y:2021:i:c:p:429-435

DOI: 10.1016/j.insmatheco.2021.07.002

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