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Health and portfolio choices : a diffidence approach

Author

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  • David Crainich

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique, IÉSEG School Of Management [Puteaux])

  • Louis Eeckhoudt

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique, IÉSEG School Of Management [Puteaux])

  • Olivier Le Courtois

    (EM - EMLyon Business School)

Abstract

The effect of health status on portfolio decisions has been extensively studied from an empirical viewpoint. In this paper, we propose a theoretical model of individuals' choice of financial assets under bivariate utility functions depending on wealth and health. Our approach makes an extensive use of the diffidence theorem. We establish the conditions under which the share of wealth held in risky assets falls as: 1) individuals' health status deteriorates and; 2) individuals' health status becomes risky. These conditions are shown to be related to the behaviour of the intensities of correlation aversion and of cross prudence as wealth increases.

Suggested Citation

  • David Crainich & Louis Eeckhoudt & Olivier Le Courtois, 2017. "Health and portfolio choices : a diffidence approach," Post-Print hal-02311924, HAL.
    • Handle: RePEc:hal:journl:hal-02311924
    DOI: 10.1016/j.ejor.2016.10.022
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    2. Li, Jingyuan & Wang, Jianli & Zhou, Lin, 2024. "Correlation aversion and bivariate stochastic dominance with respect to reference functions," Insurance: Mathematics and Economics, Elsevier, vol. 118(C), pages 157-174.
    3. Sylvie Démurger & Siwar Khelifa & Béatrice Rey, 2023. "Rural-urban migration as a risk coping strategy: The role of income differentials," IRENE Policy Reports 23-03, IRENE Institute of Economic Research.
    4. Sylvie Démurger & Siwar Khelifa & Béatrice Rey, 2023. "Rural-urban migration as a risk coping strategy: The role of income differentials," IRENE Working Papers 23-03, IRENE Institute of Economic Research.
    5. Crainich, David & Eeckhoudt, Louis & Courtois, Olivier Le, 2020. "Intensity of preferences for bivariate risk apportionment," Journal of Mathematical Economics, Elsevier, vol. 88(C), pages 153-160.

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