Self-Protection in the Expected-Utility-of-Wealth Model: An Impossibility Theorem

George Sweeney and Thomas Beard
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George Sweeney: Department of Economics, Vanderbilt University, Station B, Box 6058, 37235 Nashville TN

The Geneva Risk and Insurance Review, 1992, vol. 17, issue 2, 147-158

Abstract: We investigate the possibility of ordering expected utility-of-wealth maximizers according to their propensities to purchase self-protection. We define one agent as “more cautious†than another (toward a loss of specific size given a specific initial wealth) if the first agent would spend more on self-protection than the other, so long- as the technological relationship between spending and loss probability belongs to a broad class of functions. We show that the expected-utility-of-wealth model does not allow for the possibility that one agent could be “more cautious†than another. The Geneva Papers on Risk and Insurance Theory (1992) 17, 147–158. doi:10.1007/BF00962711

Date: 1992
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