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Benchmark values for higher order coefficients of relative risk aversion

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  • Michel Denuit
  • Béatrice Rey

Abstract

The existing literature on savings, insurance, and portfolio choices under risk has revealed that quite often comparative statics results depend, among other things, upon the values of the coefficients of relative risk aversion and relative prudence. More specifically the benchmark values for these coefficients are, respectively, one and two. Recently, several papers investigated constraints on the higher degree extensions of the coefficients of relative risk aversion and of relative prudence. The present work provides a unified approach to this question based on the concept of elementary correlation increasing transformations, allowing for a better understanding of changes in risk in the multiplicative case. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Michel Denuit & Béatrice Rey, 2014. "Benchmark values for higher order coefficients of relative risk aversion," Theory and Decision, Springer, vol. 76(1), pages 81-94, January.
    • Handle: RePEc:kap:theord:v:76:y:2014:i:1:p:81-94
    DOI: 10.1007/s11238-013-9353-8
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    Cited by:

    1. Marzia Donno & Marco Magnani & Mario Menegatti, 2020. "Changes in multiplicative risks and optimal portfolio choice: new interpretations and results," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(1), pages 251-267, June.
    2. Tao Yuqing & Cheng Wen & Zou Sijie, 2018. "Priority Setting in Health Care with Disease and Treatment Risks," Journal of Systems Science and Information, De Gruyter, vol. 6(6), pages 552-562, December.
    3. Donatella Baiardi & Marco Magnani & Mario Menegatti, 2020. "The theory of precautionary saving: an overview of recent developments," Review of Economics of the Household, Springer, vol. 18(2), pages 513-542, June.
    4. Christophe Courbage & Richard Peter & Béatrice Rey, 2022. "Incentive and welfare effects of correlated returns," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(1), pages 5-34, March.
    5. Hongxia Wang, 2019. "Generalized Multiplicative Risk Apportionment," Risks, MDPI, vol. 7(2), pages 1-9, June.
    6. Wong, Kit Pong, 2022. "Diversification and risk attitudes toward two risks," Journal of Mathematical Economics, Elsevier, vol. 102(C).
    7. Tao Yuqing & Mei Jie & Cheng Wen & Zou Sijie, 2019. "Precautionary Effort Investment under Cross Risk Aversion," Journal of Systems Science and Information, De Gruyter, vol. 7(4), pages 344-358, August.
    8. Claudio A. Bonilla & Marcos Vergara, 2021. "Risk aversion, downside risk aversion, and the transition to entrepreneurship," Theory and Decision, Springer, vol. 91(1), pages 123-133, July.

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    More about this item

    Keywords

    Expected utility; Higher order relative risk aversion; Higher order multiplicative risk apportionment; Wealth effect; Stochastic dominance; D81;
    All these keywords.

    JEL classification:

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

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