Journal article
Who should exert more effort? Risk aversion, downside risk aversion and optimal prevention
Economic theory, Vol.71(4), pp.1259-1281
06/01/2021
DOI: 10.1007/s00199-020-01282-0
Abstract
I provide new results on how risk preferences affect optimal prevention. I identify a comparative risk aversion and a comparative downside risk aversion effect and highlight those cases where both effects are aligned. Alignment depends on a probability threshold, which, in turn, only depends on the preferences of the benchmark agent. This allows to define an entire class of decision-makers who all share the same comparative static prediction relative to the reference agent. I relate my findings to different intensity measures of downside risk aversion and apply them to parametric preference changes and specific classes of utility functions.
Details
- Title: Subtitle
- Who should exert more effort? Risk aversion, downside risk aversion and optimal prevention
- Creators
- Richard Peter - Department of Finance, Henry B. Tippie College of Business, University of Iowa, Iowa City, USA
- Resource Type
- Journal article
- Publication Details
- Economic theory, Vol.71(4), pp.1259-1281
- Publisher
- Springer Nature
- DOI
- 10.1007/s00199-020-01282-0
- ISSN
- 0938-2259
- eISSN
- 1432-0479
- Number of pages
- 23
- Language
- English
- Date published
- 06/01/2021
- Academic Unit
- Finance
- Record Identifier
- 9984380497102771
Metrics
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