More pessimism than greediness: a characterization of monotone risk aversion in the Rank-Dependent Expected Utility model
Alain Chateauneuf (),
Michèle Cohen () and
Isaac Meilijson ()
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Isaac Meilijson: School of Mathematical Sciences [Tel Aviv] - Raymond and Beverly Sackler Faculty of Exact Sciences - Tel Aviv University [Tel Aviv]
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
This paper studies monotone risk aversion, the aversion to monotone, meanpreserving increase in risk (Quiggin ), in the Rank Dependent Expected Utility (RDEU) model. This model replaces expected utility by another functional, characterized by twofunctions, a utility function u in conjunction with a probability-perception function f.Monotone mean-preserving increases in risk are closely related to the notion of comparative dispersion introduced by Bickel & Lehmann [3, 4] in Non-parametric Statistics. We present a characterization of the pairs (u; f) of monotone risk averse decision makers, based on an index of greediness Gu of the utility function u and an index of pessimism Pf of the probability perception function f: the decision maker is monotone risk averse if and onlyif Pf exceeds Gu. A novel element is that concavity of u is not necessary. In fact, u must be concave only if Pf = 1.
Keywords: Risk aversion; pessimism; greediness; Rank-dependent Expected Utility (search for similar items in EconPapers)
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Published in Economic Theory, Springer Verlag, 2005, 25, pp.649-667. ⟨10.1007/s00199-003-0451-7⟩
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Journal Article: More pessimism than greediness: a characterization of monotone risk aversion in the rank-dependent expected utility model (2005)
Working Paper: More Pessimism than Greediness: A Characterization of Monotone Risk Aversion in the Rank-Dependant Expected Utility Model (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00211906
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