Benchmark values for higher order coefficients of relative risk aversion

Michel Denuit () and Beatrice Rey ()

Theory and Decision, 2014, vol. 76, issue 1, 94 pages

Abstract: The existing literature on savings, insurance, and portfolio choices under risk has revealed that quite often comparative statics results depend, among other things, upon the values of the coefficients of relative risk aversion and relative prudence. More specifically the benchmark values for these coefficients are, respectively, one and two. Recently, several papers investigated constraints on the higher degree extensions of the coefficients of relative risk aversion and of relative prudence. The present work provides a unified approach to this question based on the concept of elementary correlation increasing transformations, allowing for a better understanding of changes in risk in the multiplicative case. Copyright Springer Science+Business Media New York 2014

Keywords: Expected utility; Higher order relative risk aversion; Higher order multiplicative risk apportionment; Wealth effect; Stochastic dominance; D81 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11238-013-9353-8

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