Skewed background risks and higher-order risk preferences: prudent versus temperate behavior |
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| Authors: | Thomas Mayrhofer |
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| Institution: | 1. School of Business Studies, Stralsund University of Applied Sciences, Stralsund, Germany;2. Massachusetts General Hospital and Harvard Medical School, Harvard University, Boston, MA, USA |
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| Abstract: | In recent economic experiments, lotteries with left-skewed background risks elicit more prudent choices than lotteries with right-skewed background risks. In this letter, we use an expected utility framework to show that a skewed zero-mean background risk may induce not only prudent but also temperate behaviour. We suggest that the experimental findings could also be due to temperance, rather than merely to prudence. |
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| Keywords: | Decision making under risk background risk prudence temperance skewness seeking kurtosis aversion |
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