New Results for additive and multiplicative risk apportionment

Henri Loubergé, Yannick Malevergne and Béatrice Rey ()
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Henri Loubergé: UNIGE - Université de Genève = University of Geneva
Béatrice Rey: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique

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Abstract: We provide new characterizations of the preference for additive and multiplicative risk apportionment when risk ordering relies on stochastic dominance. We then point out a simple property of risk apportionment with additive risks: Quite generally, an observed preference for additive risk apportionment in a specific risk environment is preserved when the decision-maker is confronted to other risk situations, so long as the total order of stochastic dominance relationships among risk couples remains the same. The main objective of this paper is to check whether this simple property also holds for multiplicative risks environments. We explain why this is not the case in general, and then provide a set of conditions under which this property holds. We also show that it holds – and even more strongly – in the case of CRRA utility functions due to a particular feature of this family of utility functions.

Keywords: Additive vs. multiplicative risks; Constant relative risk aversion; Higher order risk aversion; Expected utility; Higher order risk apportionment; Stochastic dominance (search for similar items in EconPapers)
Date: 2020-10
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02930294v1
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Citations: View citations in EconPapers (4)

Published in Journal of Mathematical Economics, 2020, 90, pp. 140-151. ⟨10.1016/j.jmateco.2020.07.004⟩

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Related works:
Journal Article: New Results for additive and multiplicative risk apportionment (2020)
Working Paper: New Results for Additive and Multiplicative Risk Apportionment (2019)
Working Paper: New Results for Additive and Multiplicative Risk Apportionment (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-02930294

DOI: 10.1016/j.jmateco.2020.07.004

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