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Risk aversion in the small and in the large when outcomes are multidimensional

By Martin Hellwig

Abstract

The paper discusses criteria for comparing risk aversion of decision makers when outcomes are multidimensional. A weak concept, "commodity specific greater risk aversion", is based on the comparison of risk premia paid in a specified commodity. A stronger concept, "uniformly greater risk aversion" is based on the comparison of risk premia regardless of what commodities are used for payment. Neither concept presumes that von Neumann-Morgenstern utility functions are ordinally equivalent. Nonincreasing consumption specific risk aversion is shown to be sufficient to make randomization undesirable in an agency problem with hidden characteristics

Topics: 330 Wirtschaft
Year: 2004
OAI identifier: oai:ub-madoc.bib.uni-mannheim.de:2722

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