Comparative risk apportionment
Paan Jindapon (),
Liqun Liu () and
William Neilson ()
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Paan Jindapon: University of Alabama
Liqun Liu: Texas A&M University
Economic Theory Bulletin, 2021, vol. 9, issue 1, No 9, 112 pages
Abstract A decision maker who would rather apportion an independent risk in a state with a good lottery than in a state with a bad lottery is said to have a preference for risk apportionment (Eeckhoudt and Schlesinger in Am Econ Rev 96:280–289, 2006). In this paper, we propose a measure for the strength of nth-degree risk apportionment preference based on Pratt’s probability premium (Pratt in Econometrica 32:122–136, 1964). Under expected utility theory, we analyze the relationship between a greater preference for risk apportionment and both the Ross and Arrow–Pratt versions of comparative risk aversion.
Keywords: Risk apportionment; Risk aversion; Downside risk aversion; Prudence (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
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