A General Theorem on the Comparative Statics of Changes in Risk |
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Authors: | Arthur Hau |
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Affiliation: | (1) Department of Economics and Finance, University of Central Arkansas, 201 Donaghey Avenue, Conway, AR 72035, USA |
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Abstract: | In this paper, the concept of absolutely riskier than is introduced to generalize Gollier's (Journal of Economic Theory, 66, 522–535) necessary and sufficient conditions for the comparative statics of a change in risk for risk averters. The restrictive assumption that the payoff function is monotonic in the risk is relaxed. The policymaker's choice problem, the newsboy problem, and a farmer's example are used to illustrate how easily the monotonicity assumption is violated. Finally, some important properties of the concept of absolutely riskier than, such as its relation with the concept of second-order stochastic dominance, are illustrated using the farmer's example. |
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Keywords: | absolutely riskier than comparative statics risk averter non-monotonic payoff second-order stochastic dominance |
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