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Proper risk behavior

Author

Listed:
  • K. Dachraoui
  • G. Dionne
  • L. Eeckhoudt
  • P. Godfroid

Abstract

How does risk aversion affect choices when expenses improve probabilities? Attempts to answer this question in the literature found an endogenous switching probability. In this paper we introduce a new concept of comparative attitude to risk, namely proper risk behavior and determine ½ as the threshold probability over which a more proper risk behavior agent becomes a gambler. We consider applications related to self-protection and willingness to pay. We give a sufficient condition for analytic comparative proper risk behavior and show that all results hold in the presence of a background risk.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • K. Dachraoui & G. Dionne & L. Eeckhoudt & P. Godfroid, 1999. "Proper risk behavior," THEMA Working Papers 99-27, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    • Handle: RePEc:ema:worpap:99-27
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    File URL: http://www.u-cergy.fr/IMG/documents//99-27Dionne.pdf
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    Other versions of this item:

    • Dachraoui, K. & Dionne, G. & Eeckhoudt, L. & Godfroid, P., 1999. "Proper Risk Behavior," Papers 99-27, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
    • Dachraoui, Kais & Dionne, Georges & Eeckhoudt, Louis & Godfroid, Philippe, 1999. "Proper risk behavior," Working Papers 99-1, HEC Montreal, Canada Research Chair in Risk Management.

    Citations

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    Cited by:

    1. Dachraoui, Kais & Dionne, Georges, 2001. "Stochastic dominance and optimal portfolio," Economics Letters, Elsevier, vol. 71(3), pages 347-354, June.
    2. Kangoh Lee, 2005. "Wealth Effects on Self-Insurance and Self-Protection against Monetary and Nonmonetary Losses," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 30(2), pages 147-159, December.
    3. Godfroid, Philippe, 2001. "Monotone transformation of utility: Some particular cases," Economics Letters, Elsevier, vol. 71(2), pages 241-245, May.

    More about this item

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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