On the utility premium of Friedman and Savage |
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| Authors: | Louis Eeckhoudt Harris Schlesinger |
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| Affiliation: | aIESEG School of Management, 3 rue de la Digue, 59000 Lille, France;bCORE, 34 Voie du Roman Pays, 1348 Louvain-la-Neuve, Belgium;cDepartment of Economics & Finance, University of Alabama, Tuscaloosa AL 35487-0224, USA |
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| Abstract: | We re-examine the utility premium of Friedman–Savage [Friedman, Milton and Savage, Leonard J., “The Utility Analysis of Choices Involving Risk.” Journal of Political Economy 56, 1948, pp. 279–304.]. This measure is useful in understanding risky choices. For instance its reaction to an increased wealth equates to a precautionary demand for saving. We also analyze its two components. |
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| Keywords: | Precautionary saving Prudence Risk aversion Risk premium Utility premium |
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