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Prudence, temperance, edginess, and risk apportionment as decreasing sensitivity to detrimental changes

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  • Denuit, Michel
  • Rey, Béatrice

Abstract

This paper shows that the notions of prudence, temperance, edginess, and, more generally, risk apportionment of any degree are the consequences of the natural idea that the sensitivity to detrimental changes should decrease with initial wealth. In the setting of Epstein and Tanny (1980), this turns out to be equivalent to the supermodularity of the expected utility for some specific 4-state lotteries.

Suggested Citation

  • Denuit, Michel & Rey, Béatrice, 2010. "Prudence, temperance, edginess, and risk apportionment as decreasing sensitivity to detrimental changes," Mathematical Social Sciences, Elsevier, vol. 60(2), pages 137-143, September.
    • Handle: RePEc:eee:matsoc:v:60:y:2010:i:2:p:137-143
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    References listed on IDEAS

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    Cited by:

    1. Christoph Heinzel, 2014. "Term structure of discount rates under multivariate s-ordered consumption growth," Working Papers SMART 14-01, INRAE UMR SMART.
    2. Steven E. Pav, 2015. "Safety Third: Roy's Criterion and Higher Order Moments," Papers 1506.04227, arXiv.org.
    3. Christian Gollier & James Hammitt & Nicolas Treich, 2013. "Risk and choice: A research saga," Journal of Risk and Uncertainty, Springer, vol. 47(2), pages 129-145, October.
    4. Crainich, David & Eeckhoudt, Louis & Le Courtois, Olivier, 2017. "Health and portfolio choices: A diffidence approach," European Journal of Operational Research, Elsevier, vol. 259(1), pages 273-279.
    5. Michel Denuit & Louis Eeckhoudt, 2016. "Risk aversion, prudence, and asset allocation: a review and some new developments," Theory and Decision, Springer, vol. 80(2), pages 227-243, February.
    6. Denuit, Michel M., 2018. "Risk apportionment and multiply monotone targets," Mathematical Social Sciences, Elsevier, vol. 92(C), pages 74-77.
    7. Paan Jindapon & Liqun Liu & William S. Neilson, 2021. "Comparative risk apportionment," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 91-112, April.
    8. Denuit, Michel & Liu, Liqun, 2013. "Decreasing higher-order absolute risk aversion and higher-degree stochastic dominance," LIDAM Discussion Papers ISBA 2013007, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    9. David Crainich & Louis Eeckhoudt & Olivier Le Courtois, 2013. "An index of (absolute) correlation aversion: theory and some implications," Working Papers 2013-ECO-12, IESEG School of Management.
    10. Li, Jingyuan & Liu, Liqun, 2014. "The monetary utility premium and interpersonal comparisons," Economics Letters, Elsevier, vol. 125(2), pages 257-260.
    11. Denuit, Michel & Rey, Béatrice, 2013. "Another look at risk apportionment," Journal of Mathematical Economics, Elsevier, vol. 49(4), pages 335-343.
    12. Michel Denuit & Liqun Liu, 2014. "Decreasing higher-order absolute risk aversion and higher-degree stochastic dominance," Theory and Decision, Springer, vol. 76(2), pages 287-295, February.
    13. Denuit, Michel & Rey, Beatrice, 2012. "Uni- And Multidimensional Risk Attitudes: Some Unifying Theorems," LIDAM Discussion Papers ISBA 2012014, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    14. Denuit, Michel, 2016. "Risk Apportionment and Multiply Monotone Targets," LIDAM Discussion Papers ISBA 2016044, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).

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