Risk Aversion in the Small and in the Large When Outcomes Are Multidimensional

Martin Hellwig

No 04-22, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: The paper discusses criteria for comparing risk aversion of decision makers when outcomes are multidimensional. A weak concept, �commodity specific greater risk aversion�, is based on the comparison of risk premia paid in a specified commodity. A stronger concept, �uniformly greater risk aversion� is based on the comparison of risk premia regardless of what commodities are used for payment. Neither concept presumes that von Neumann-Morgenstern utility functions are ordinally equivalent. Nonincreasing consumption specific risk aversion is shown to be sufficient to make randomization undesirable in an agency problem with hidden characteristics.

Pages: 25 pages
Date: 2004-06-07
Note: Research support from Deutsche Forschungsgemeinschaft through Sonderforschungsbereich 504, at the University of Mannheim, is gratefully acknowledged.
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Risk aversion in the small and in the large when outcomes are multidimensional (2004)
Working Paper: Risk Aversion in the Small and in the Large. When Outcomes are Multidimensional (2004)
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