Diffidence theorem and state dependent preferences

Georges Dionne () and Marie-Gloriose hW
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Marie-Gloriose hW: HEC Montreal, Department of Applied Economics

No 97-9, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

Abstract: Gollier and Kimball (1994, 1996) have developed a standard technique based on the diffidence theorem. This theorem provides a very simple instrument to solve relatively sophisticated problems when preferences are state independent. The object of this article is to show that their theorem is also very useful to derive significant results with state dependent preferences. Using the reference set notion and an extension of the diffidence theorem, we establish formally necessary and sufficient conditions on the reference set in order to obtain prudence and decreasing absolute risk aversion.

Keywords: State dependent preferences; reference set; diffidence theorem; prudence; decreasing absolute risk aversion (DARA) (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 13 pages
Date: 1999-04-01
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Working Paper: Diffidence theorem and state dependent preferences (1997)
Working Paper: Diffidence Theorem and State Dependent Preferences (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:crcrmw:1997_009

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