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Substituting one risk increase for another: Extension and application

Author

Listed:
  • Wang, Jianli
  • Wang, Hongxia
  • Li, Jingyuan

Abstract

The paper theoretically extends the idea of the rate of substitution of one risk change for another. We provide a generalized definition of the rate of substitution between two risk changes beginning with different starting risks. It is demonstrated that our generalized version can be used to compare two agents’ attitudes towards risk according to the Ross risk averse order. Moreover, we find that it provides additional insight into the probability premium approach to comparative risk aversion.

Suggested Citation

  • Wang, Jianli & Wang, Hongxia & Li, Jingyuan, 2025. "Substituting one risk increase for another: Extension and application," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000229
    DOI: 10.1016/j.econlet.2025.112185
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    More about this item

    Keywords

    Rate of substitution; Ross risk aversion; Risk increases; Risk apportionment;
    All these keywords.

    JEL classification:

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

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