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When Ross meets Bell: the linex utility function

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  • DENUIT, Michel M.
  • EECKHOUDT, Louis
  • SCHLESINGER, Harris

Abstract

At first glance, there would appear to be no relationship between Bell's (1988) concept of one-switch utility functions and that of a stronger measure of risk aversion due to Ross (1981). We show however that specific assumptions about the behavior of the stronger measure of risk aversion also give rise to the linex utility function which belongs to the class of one-switch utility functions. In particular, this utility class is the only one that satisfies a stronger version of Kimball's (1993) standard risk aversion over all levels of wealth. We apply our results to consider nth-degree deteriorations in background risk and their effect on risk taking behavior
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • DENUIT, Michel M. & EECKHOUDT, Louis & SCHLESINGER, Harris, 2013. "When Ross meets Bell: the linex utility function," LIDAM Reprints CORE 2496, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2496
    DOI: 10.1016/j.jmateco.2013.01.006
    Note: In : Journal of Mathematical Economics, 49(2), 177-182, 2013
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    References listed on IDEAS

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    1. Denuit, Michel M. & Eeckhoudt, Louis, 2013. "Improving your chances: A new result," Economics Letters, Elsevier, vol. 118(3), pages 475-477.
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    6. Bjørn Sandvik & Lars Thorlund-Petersen, 2010. "Sensitivity Analysis of Risk Tolerance," Decision Analysis, INFORMS, vol. 7(3), pages 313-321, September.
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    19. Denuit, Michel & Eeckhoudt, Louis, 2013. "Improving your chances: A new result," LIDAM Reprints ISBA 2013011, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    20. Jindapon, Paan & Neilson, William S., 2007. "Higher-order generalizations of Arrow-Pratt and Ross risk aversion: A comparative statics approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 719-728, September.
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    Cited by:

    1. Louis Eeckhoudt & Liqun Liu & Jack Meyer, 2017. "Restricted increases in risk aversion and their application," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(1), pages 161-181, June.
    2. Wang, Jianli & Li, Jingyuan, 2014. "Decreasing Ross risk aversion: Higher-order generalizations and implications," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 136-142.
    3. Dionne, Georges & Li, Jingyuan, 2014. "Comparative Ross risk aversion in the presence of mean dependent risks," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 128-135.
    4. Georges Dionne & Jingyuan Li & Cedric Okou, 2012. "An Extension of the Consumption-based CAPM Model," Cahiers de recherche 1214, CIRPEE.
    5. Pelin G. Canbolat, 2019. "Stochastic Contests with Linex Utility Functions," Alphanumeric Journal, Bahadir Fatih Yildirim, vol. 7(1), pages 113-128, June.
    6. Carlos Rodríguez Raposo & Pablo Coello Pulido, 2021. "Ergodicity transformation for additive-ruin wealth dynamic," Working Papers hal-03198073, HAL.
    7. Liqun Liu & Jack Meyer, 2013. "Normalized measures of concavity and Ross’s strongly more risk averse order," Journal of Risk and Uncertainty, Springer, vol. 47(2), pages 185-198, October.
    8. Liu, Liqun & Meyer, Jack, 2013. "Substituting one risk increase for another: A method for measuring risk aversion," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2706-2718.
    9. Georges Dionne & Jingyuan Li, 2012. "Comparative Ross Risk Aversion in the Presence of Quadrant Dependent Risks," Cahiers de recherche 1226, CIRPEE.

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