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Higher-order generalizations of Arrow-Pratt and Ross risk aversion: a comparative statics approach. (English) Zbl 1281.91101
Summary: We analyze comparative risk aversion in a new way, through a comparative statics problem in which, for a cost, agents can shift from an initial probability distribution toward a preferred distribution. The Ross characterization arises when the original distribution is riskier than the preferred distribution and the cost is monetary, and the Arrow-Pratt characterization arises when the original distribution differs from the preferred distribution by a simple mean-preserving spread and the cost is a utility cost. Higher-order increases in risk lead to higher-order generalizations, and the comparative statics method yields a unified approach to the problem of comparative risk attitudes.

91B30 Risk theory, insurance (MSC2010)
Full Text: DOI
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