A precautionary tale of risk aversion and prudence. (English) Zbl 0860.90038

Munier, Bertrand (ed.) et al., Models and experiments in risk and rationality. Dordrecht: Kluwer Academic Publishers. Theory Decis. Libr., Ser. B. 29, 75-90 (1994).
This paper examines the link between changes in risk aversion and changes in prudence. In general, preferences that are more prudent can be either everywhere more risk averse or everywhere less risk averse. If neither of these orderings holds, we show that a type of single crossing property holds, with the more-prudent preferences exhibiting more risk aversion at lower wealth levels and less risk aversion at higher wealthy levels. We further examine conditions under which a higher degree of risk aversion implies a higher degree of prudence.
For the entire collection see [Zbl 0847.00015].


91B30 Risk theory, insurance (MSC2010)
91B16 Utility theory