Skewed background risks and higher-order risk preferences: prudent versus temperate behavior

Thomas Mayrhofer

Applied Economics Letters, 2017, vol. 24, issue 5, 338-341

Abstract: In recent economic experiments, lotteries with left-skewed background risks elicit more prudent choices than lotteries with right-skewed background risks. In this letter, we use an expected utility framework to show that a skewed zero-mean background risk may induce not only prudent but also temperate behaviour. We suggest that the experimental findings could also be due to temperance, rather than merely to prudence.

Date: 2017
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DOI: 10.1080/13504851.2016.1192265

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