Ross risk vulnerability for introductions and changes in background risk |
| |
Authors: | Donald C. Keenan Arthur Snow |
| |
Affiliation: | 1. Department of Economics & THEMA, University of Cergy-Pontoise, Cergy 95001, France;2. Department of Economics, University of Georgia, Athens, GA 30602, USA |
| |
Abstract: | We present two theorems that provide necessary and sufficient conditions for an expected utility maximizer to become more risk averse in the sense of Ross with respect to bearing a foreground risk after the introduction of any independent fair or unfair additive background risk. We call these decision makers Ross risk vulnerable, and show that Ross decreasing absolute risk aversion and Ross decreasing absolute prudence are jointly sufficient for Ross risk vulnerability. Restrictions on utility necessary and sufficient for Ross risk vulnerability with respect to stochastic dominance deteriorations of an existing background risk are also presented. Our analysis concludes with applications of Ross risk vulnerability. |
| |
Keywords: | Expected utility Greater Ross risk aversion Temperance premium |
本文献已被 ScienceDirect 等数据库收录! |