Risk Prevention Activities and Uncertainty Attitude

Abstract

As it is well-known, the three main tools used by a decision maker in order to deal with disliked risks are saving, insurance and prevention. In general, when an activity allows to reduce the expected cost of an agent's loss we speak of prevention activity. Focusing the attention on loss reduction and on loss prevention decisions, up to now most of the literature has concentrated on static models in a single-period framework, or on special dynamic models with a two-period setting. In our paper we focus our attention on the role played by time with the aim of characterizing the optimal prevention activities. In particular, our study is devoted to the analysis of loss prevention actions, with different assumptions about the timing decisions.

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