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New Results for Additive and Multiplicative Risk Apportionment

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  • Henri Loubergé

    (Geneva School of Economics and Management, University of Geneva, Uni Mail, Pont d'Arve 40, 1211 Geneva 4)

  • Yannick Malevergne

    (Université Paris 1 Panthéon Sorbonne, PRISM Sorbonne EA 4101 and LabEx ReFi, F-75005 Paris, France)

  • Béatrice Rey

    (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France)

Abstract

We start by pointing out a simple property of risk apportionment with additive risks in the general stochastic dominance context defined by Eeckhoudt et al. (2009b). Quite generally, an observed preference for risk apportionment with additive risks in a specific risk environment is preserved when the decision-maker is confronted to other risk situations, so long as the total order of stochastic dominance relationships among pairs of risks remains the same. Our objective is to check whether this simple property also holds for multiplicative risk environments. We show that this is not the case, in general, but that the property holds and more strongly for the case of CRRA utility functions. This is due to a particular feature of CRRA functions that we unveil.

Suggested Citation

  • Henri Loubergé & Yannick Malevergne & Béatrice Rey, 2019. "New Results for Additive and Multiplicative Risk Apportionment," Working Papers 1915, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    • Handle: RePEc:gat:wpaper:1915
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    References listed on IDEAS

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    More about this item

    Keywords

    Additive risks; Constant relative risk aversion; Multiplicative risks; Preserved preference ranking; 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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