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Credibilistic risk aversion and prudence

Irina Georgescu () and Jani Kinnunen

International Journal of Business Innovation and Research, 2016, vol. 11, issue 1, 146-160

Abstract: Risk aversion and prudence are well-studied topics in probabilistic risk theory. This paper uses credibility theory of B. Liu and Y. Liu to approach these closely related concepts. The risk situations are modelled by fuzzy variables and the indicators of risk aversion and prudence are defined in the context of credibilistic expected utility theory. Approximate calculation formulas for these indicators are established and their properties are examined. The paper establishes relationships between credibilistic risk aversion and prudence, as well as, between credibilistic prudence and optimal precautionary saving.

Keywords: credibility theory; risk aversion; prudence; precautionary saving; modelling; fuzzy logic; fuzzy variables; credibilistic expected utility theory; probabilistic risk theory. (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:ids:ijbire:v:11:y:2016:i:1:p:146-160