# 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

**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://halshs.archives-ouvertes.fr/halshs-00211906

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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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**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-Dependant Expected Utility Model (1997)

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