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: TAU - School of Mathematical Sciences [Tel Aviv] - TAU - Raymond and Beverly Sackler Faculty of Exact Sciences [Tel Aviv] - TAU - Tel Aviv University

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper studies monotone risk aversion, the aversion to monotone, meanpreserving increase in risk (Quiggin [21]), 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)
Date: 2005
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00211906
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Citations: View citations in EconPapers (57)

Published in Economic Theory, 2005, 25, pp.649-667. ⟨10.1007/s00199-003-0451-7⟩

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Related works:
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-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

DOI: 10.1007/s00199-003-0451-7

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