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Supermodularity and risk aversion

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  • Quiggin, John
  • Chambers, Robert G.

Abstract

In this paper, we consider the relationship between supermodularity and risk aversion. We show that supermodularity of the certainty equivalent implies that the certainty equivalent of any random variable is less than its mean. We also derive conditions under which supermodularity of the certainty equivalent is equivalent to aversion to mean-preserving spreads in the sense of Rothschild and Stiglitz.
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  • Quiggin, John & Chambers, Robert G., 2006. "Supermodularity and risk aversion," Mathematical Social Sciences, Elsevier, vol. 52(1), pages 1-14, July.
    • Handle: RePEc:eee:matsoc:v:52:y:2006:i:1:p:1-14
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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