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Proper risk behavior

Author

Listed:
  • Dachraoui, Kais

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Dionne, Georges

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Eeckhoudt, Louis

    (Université Catholique de Louvain)

  • Godfroid, Philippe

    (Université Catholique de Louvain)

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.

Suggested Citation

  • Dachraoui, Kais & Dionne, Georges & Eeckhoudt, Louis & Godfroid, Philippe, 1999. "Proper risk behavior," Working Papers 99-1, HEC Montreal, Canada Research Chair in Risk Management.
    • Handle: RePEc:ris:crcrmw:1999_001
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    File URL: https://www.risksresearch.com/_files/ugd/a6eed3_e62b1d8f5f8e49dda160d6ff84ac0610.pdf
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    Other versions of this item:

    • 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.
    • 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..

    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

    Keywords

    Mixed risk aversion; proper risk aversion; proper risk behavior; self-protection; willingness to pay; background risk; principal-agent;
    All these keywords.

    JEL classification:

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

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