Sensitivity Analysis of Risk Tolerance

Bjørn Sandvik () and Lars Thorlund-Petersen ()
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Bjørn Sandvik: Department of Economics, University of Bergen, N-5007 Bergen, Norway
Lars Thorlund-Petersen: Bodø Graduate School of Business, N-8049 Bodø, Norway

Decision Analysis, 2010, vol. 7, issue 3, 313-321

Abstract: For a risk-averse decision maker with exponential utility facing a decision between two investments X and Y , there may exist more than one critical value of risk tolerance for which the decision is reversed from one investment to the other. Our main result establishes that if Y is preferred to X by all risk-seeking decision makers, then there is at most one such critical value. We extend this result to linear plus exponential utility functions. The results reduce the input required from a decision maker.

Keywords: decision analysis; risk aversion/tolerance; sensitivity analysis; stochastic dominance (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:7:y:2010:i:3:p:313-321

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