Increasing Outer Risk

X. Wang () and Carmen F. Menezes ()
Additional contact information
Carmen F. Menezes: Department of Economics, University of Missouri, https://economics.missouri.edu

No 413, Working Papers from Department of Economics, University of Missouri

Abstract: Recent empirical research has established that the distributions of a wide range of economic variables are kurtotic in that they have higher peak(s) in the neighborhood of the mean and greater elongation in the tails than the normal distribution. This paper provides a formal characterization of the empirically significant notions of kurtotic distributions by formulating the concept of outer risk. An increase in outer risk corresponds to a dispersion transfer from the center of a distribution to its tails. In terms of the relocation of probability mass, such a dispersion transfer accentuates the peak(s) of the distribution and elongates its tails. It is shown that ordering distributions by outer risk is equivalent to the ordering of distributions resulting from unanimous choice by all individuals whose utility function has a negative fourth derivative.

Keywords: Outer risk; outer risk aversion (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 19 pgs.
Date: 2004-12-23, Revised 2004-12-23
New Economics Papers: this item is included in nep-mic and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://drive.google.com/file/d/15j9n1etHzf2zojk8L ... HOw/view?usp=sharing (application/pdf)

Related works:
Journal Article: Increasing outer risk (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:umc:wpaper:0413

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Missouri Contact information at EDIRC.
Bibliographic data for series maintained by Chao Gu ().