Multidimensional risk aversion: the cardinal sin

Louis Eeckhoudt (), Elisa Pagani () and Eugenio Peluso
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Louis Eeckhoudt: IÉSEG School of Management
Elisa Pagani: University of Verona

Annals of Operations Research, 2023, vol. 320, issue 1, No 2, 15-31

Abstract: Abstract Attitudes towards multidimensional risk depend both on the shape of the indifference map under certainty and on the degree of concavity of the utility function representing preferences under risk. A decomposition of the risk premium is built on the new notion of “compensated risk aversion”. The balance between the two components is shown to depend on the association of the risks. Several applications are also presented, including the intertemporal model.

Keywords: Utility theory; Multivariate risk aversion; Risk premium; Compensated risk aversion; Strength of preferences; Intertemporal risk attitude (search for similar items in EconPapers)
JEL-codes: D01 D11 D81 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10479-022-04863-5

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