Comparative Risk Aversion in the Presence of Ambiguity

2016 ◽  
Vol 8 (3) ◽  
pp. 51-63
Author(s):  
Marie-Charlotte Guetlein
Keyword(s):  
Risk Aversion ◽  
Expected Utility ◽  
Smooth Ambiguity Model ◽  
Comparative Risk ◽  
Comparative Risk Aversion ◽  
Increases In Risk ◽  
Ambiguity Attitude ◽  
Increase In Risk

This paper suggests a characterization of increases in risk aversion within the smooth ambiguity model by Klibanoff, Marinacci, and Mukerji (2005). I show that an increase in risk aversion is qualitatively different from that under expected utility, due to the incomplete separation between risk and ambiguity attitude. The analysis clarifies how ambiguity perception and attitude depend on risk aversion. (JEL D81)

scholarly journals Risk aversion over finite domains

2021 ◽  
Author(s):  
Jean Baccelli ◽  
Georg Schollmeyer ◽  
Christoph Jansen
Keyword(s):  
Risk Aversion ◽  
Expected Utility ◽  
Absolute Risk ◽  
Risk Attitudes ◽  
Convex Domains ◽  
Rank Dependent Utility ◽  
Comparative Risk ◽  
Finite Domains ◽  
Comparative Risk Aversion ◽  
Special Case

AbstractWe investigate risk attitudes when the underlying domain of payoffs is finite and the payoffs are, in general, not numerical. In such cases, the traditional notions of absolute risk attitudes, that are designed for convex domains of numerical payoffs, are not applicable. We introduce comparative notions of weak and strong risk attitudes that remain applicable. We examine how they are characterized within the rank-dependent utility model, thus including expected utility as a special case. In particular, we characterize strong comparative risk aversion under rank-dependent utility. This is our main result. From this and other findings, we draw two novel conclusions. First, under expected utility, weak and strong comparative risk aversion are characterized by the same condition over finite domains. By contrast, such is not the case under non-expected utility. Second, under expected utility, weak (respectively: strong) comparative risk aversion is characterized by the same condition when the utility functions have finite range and when they have convex range (alternatively, when the payoffs are numerical and their domain is finite or convex, respectively). By contrast, such is not the case under non-expected utility. Thus, considering comparative risk aversion over finite domains leads to a better understanding of the divide between expected and non-expected utility, more generally, the structural properties of the main models of decision-making under risk.

Alternative Approaches to Comparative nth-Degree Risk Aversion

2019 ◽  
Vol 65 (8) ◽  
pp. 3824-3834 ◽  
Author(s):  
Liqun Liu ◽  
William S. Neilson
Keyword(s):  
Risk Aversion ◽  
Decision Analysis ◽  
Expected Utility ◽  
Risk Premium ◽  
Higher Order ◽  
Comparative Statics ◽  
Risk Increase ◽  
Comparative Risk ◽  
Alternative Approaches ◽  
Comparative Risk Aversion

This paper extends the three main approaches to comparative risk aversion—the risk premium approach and the probability premium approach of Pratt (1964) [Risk aversion in the small and in the large. Econometrica 32(1-2):122–136] and the comparative statics approach of Jindapon and Neilson (2007) [Higher-order generalizations of Arrow-Pratt and Ross risk aversion: A comparative statics approach. J. Econom. Theory 136(1):719–728]—to study comparative nth-degree risk aversion. These extensions can accommodate trading off an nth-degree risk increase and an mth-degree risk increase for any m, such that [Formula: see text]. It goes on to show that, in the expected utility framework, all of these general notions of comparative nth-degree risk aversion are equivalent and can be characterized by the concept of (n/m)th-degree Ross more risk aversion of Liu and Meyer (2013) [Substituting one risk increase for another: A method for measuring risk aversion. J. Econom. Theory 148(6):2706–2718]. This paper was accepted by Han Bleichrodt, decision analysis.

Comparative risk aversion: A formal approach with applications to saving behavior

2012 ◽  
Vol 147 (4) ◽  
pp. 1614-1641 ◽  
Author(s):  
Antoine Bommier ◽  
Arnold Chassagnon ◽  
François Le Grand
Keyword(s):  
Risk Aversion ◽  
Formal Approach ◽  
Comparative Risk ◽  
Saving Behavior ◽  
Comparative Risk Aversion

scholarly journals Discriminating Between Models of Ambiguity Attitude: a Qualitative Test

2019 ◽  
Vol 18 (2) ◽  
pp. 708-749 ◽  
Author(s):  
Robin Cubitt ◽  
Gijs van de Kuilen ◽  
Sujoy Mukerji
Keyword(s):  
Economic Theory ◽  
Expected Utility ◽  
Maxmin Expected Utility ◽  
Smooth Ambiguity Model ◽  
New Models ◽  
Qualitative Test ◽  
Behavioral Issue ◽  
Ambiguity Attitude

AbstractDuring recent decades, many new models have emerged in pure and applied economic theory according to which agents’ choices may be sensitive to ambiguity in the uncertainty that faces them. The exchange between Epstein (2010) and Klibanoff et al. (2012) identified a notable behavioral issue that distinguishes sharply between two classes of models of ambiguity sensitivity that are importantly different. The two classes are exemplified by the α-maxmin expected utility (MEU) model and the smooth ambiguity model, respectively; and the issue is whether or not a desire to hedge independently resolving ambiguities contributes to an ambiguity-averse agent's preference for a randomized act. Building on this insight, we implement an experiment whose design provides a qualitative test that discriminates between the two classes of models. Among subjects identified as ambiguity sensitive, we find greater support for the class exemplified by the smooth ambiguity model; the relative support is stronger among subjects identified as ambiguity averse. This finding has implications for applications that rely on specific models of ambiguity preference.

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