Risk Attitudes, Buying and Selling Price for a Lottery and Simple Strategies

Michal Lewandowski

Central European Journal of Economic Modelling and Econometrics, 2013, vol. 5, issue 1, 1-34

Abstract: This paper defines the concept of simple strategy and introduces three kinds of simple strategies: wealth-invariant, scale-invariant and "wealthier-accept more". For three commonly used utility function families: CARA, CRRA and DARA equivalent characterizations are obtained in terms of the corresponding simple strategy, in terms of the buying and selling price properties, and in terms of the utility function properties as expressed by Cauchy functional equations. Moreover, an extension of famous Pratt (1964) theorem is proved which involves buying price for a lottery as an alternative measure of comparative risk aversion. Additionally a number of propositions on both selling and buying price for a lottery and CRRA utility class are proved.

Keywords: wealth-invariance; scale-invariance; CARA; CRRA; DARA; risk aversion; buying and selling price for a lottery (search for similar items in EconPapers)
JEL-codes: C91 D03 D81 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://cejeme.eu/publishedarticles/2013-02-20-635099545389687500-6604.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:5:y:2013:i:1:p:1-34

Access Statistics for this article

More articles in Central European Journal of Economic Modelling and Econometrics from Central European Journal of Economic Modelling and Econometrics
Bibliographic data for series maintained by Damian Jelito ().