Decreasing aversion under ambiguity

Frédéric Cherbonnier and Christian Gollier ()

Journal of Economic Theory, 2015, vol. 157, issue C, 606-623

Abstract: Under which condition does the set of desirable uncertain prospects expand when wealth increases? We show that the decreasing concavity (DC) of the utility function u is necessary and sufficient in the α-maxmin expected utility model. In the smooth ambiguity aversion model with the ambiguity valuation function ϕ, the DC of u and of ϕ∘u is necessary and sufficient. An alternative classical definition of decreasing aversion is based on the hypothesis that the investment in a risky asset is increasing in wealth. We show that this hypothesis does not hold in general under ambiguity aversion, and that one needs to constrain the structure of ambiguity to obtain unambiguous results.

Keywords: Decreasing concavity; Portfolio choice; α-MEU; Smooth ambiguity aversion; Maxmin (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:157:y:2015:i:c:p:606-623

DOI: 10.1016/j.jet.2015.01.002

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