Preserving preference rankings under background risk |
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| Authors: | Christian Gollier Harris Schlesinger |
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| Institution: | a GREMAQ and IDEI, Université de Toulouse, Place Anatole France, Toulouse, Cedex 31042, France;b University of Alabama, 200 Alston Hall, Tuscaloosa, AL 35487-0224, USA |
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| Abstract: | For any random vector of wealth payoffs
, let the random variable
be mutually independent of
and
with
. The basic question we address in this paper is the following: When can we say that
is preferred by an expected-utility maximizer to
whenever
is preferred to
? In other words, when can we guarantee that the addition of an arbitrary independent background noise
will not affect the preference ranking between other risks? |
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| Keywords: | Background risk Risk aversion Risk tolerability Zero-switch utility |
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