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Risk Aversion, Prudence and Temperance : A Unified Approach

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  • EECKHOUDT, Louis
  • Christian GOLLIER
  • Thierry SCHNEIDER

Abstract

Risk aversion can be defined either by the negative sign of the second derivative of the utility function or by the rejection of any mean-preserving increase in risk. The more recent notions of prudence and temperance have so far been defined exclusively by the sign of the third and the fourth derivative of the utility function. In this paper we show that, as risk aversion, prudence and temperance can also be interpreted as systematic attitudes towards transformation of a density function.

Suggested Citation

  • EECKHOUDT, Louis & Christian GOLLIER & Thierry SCHNEIDER, 1994. "Risk Aversion, Prudence and Temperance : A Unified Approach," Working Papers 006, Risk and Insurance Archive.
    • Handle: RePEc:wop:riskar:006
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    References listed on IDEAS

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    6. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May.
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