A Ranking over "More Risk Averse Than" Relations and its Application to the Smooth Ambiguity Model

Chiaki Hara ()
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Chiaki Hara: Institute of Economic Research, Kyoto University

No 1019, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: Given two pairs of expected utility functions, we formalize the notion that one expected utility function is more risk-averse than the other in the first pair to a greater extent than in the second pair. We do so by assuming that the utility functions are twice continuously differentiable and satisfy the Inada condition, and, in each of the two pairs, using the function that transforms the derivatives of one expected utility function to the derivatives of the other, rather than the function that transforms one expected utility function to the other. This definition allows us to interpret the quantitative results on the ambiguity aversion coefficients of the smooth ambiguity model of Klibanoff, Marinacci, and Mukerji (2005) in some cases not covered by the more-ambiguity-averse-than relation that they conceived.

Keywords: Expected utility functions; risk aversion; ambiguity aversion; smooth ambiguity model (search for similar items in EconPapers)
JEL-codes: C38 D81 G11 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2020-01
New Economics Papers: this item is included in nep-mic, nep-ore and nep-upt
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