Tradeoffs for Downside Risk-Averse Decision-Makers and the Self-Protection Decision

Michel Denuit, Louis Eeckhoudt (), Liqun Liu and Jack Meyer ()
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Michel Denuit: Institut de Statistique, Biostatistique et Sciences Actuarielles (ISBA) - UCL - Université Catholique de Louvain = Catholic University of Louvain
Louis Eeckhoudt: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique
Liqun Liu: Texas A&M University [College Station]

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Abstract: In addition to risk aversion, decision-makers tend to be also downside risk averse. Besides the usual size for risk trade-off, this allows several other trade-offs to be considered. The decision to increase the level of self-protection generates five trade-offs each involving an unfavourable downside risk increase and an accompanying beneficial change. Five stochastic orders that correspond to these trade-offs are defined, characterised and used to prove comparative static theorems that provide information concerning the self-protection decision. The five stochastic orders are general in nature and can be applied in any decision model where downside risk aversion is assumed.

Date: 2016-03
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Citations: View citations in EconPapers (12)

Published in Geneva Risk and Insurance Review, 2016, 41 (1), pp.19-47. ⟨10.1057/grir.2015.3⟩

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Related works:
Journal Article: Tradeoffs for Downside Risk-Averse Decision-Makers and the Self-Protection Decision (2016)
Working Paper: Tradeoffs for Downside Risk-Averse Decision-Makers and the Self-Protection Decision (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02987025

DOI: 10.1057/grir.2015.3

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