Indifference pricing with uncertainty averse preferences

Abstract

We consider the indifference valuation of an uncertain monetary payoff from the perspective of an uncertainty averse decision-maker. We study how the indifference valuation depends on the decision maker’s comparative uncertainty attitudes, and we obtain a characterization of increasing, decreasing, and constant uncertainty aversion in terms of cash-subadditive, cash-superadditive, and cash-additive quasiconvex risk measures