Working paper
The Self-Protection Problem
SSRN
03/27/2023
DOI: 10.2139/ssrn.4392079
Abstract
This chapter surveys the technical aspects of the self-protection problem in the expected utility model. Self-protection is a costly investment to reduce the probability of loss. Even in the simplest model with a binary risk of loss, the objective function is not necessarily concave in the level of self-protection, and deriving clean comparative statics has proven notoriously difficult. This chapter discusses the regularity of the self-protection problem, the trade-off between risk aversion and downside risk aversion, and the role of probability thresholds. It presents results about the decision to engage in self-protection (i.e., the extensive margin) and the optimal level of self-protection (i.e., the intensive margin). Recent intertemporal extensions are also discussed with a focus on the role of saving as a substitute for self-protection.
Details
- Title: Subtitle
- The Self-Protection Problem
- Creators
- Richard Peter - University of Iowa
- Resource Type
- Working paper
- Publisher
- SSRN
- DOI
- 10.2139/ssrn.4392079
- Number of pages
- 33 pages
- Language
- English
- Date posted
- 03/27/2023
- Academic Unit
- Finance
- Record Identifier
- 9984414160002771
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