Multidimensional risk aversion: the cardinal sin

Louis Eeckhoudt · Elisa Pagani · Eugenio Peluso

2 citations0/0 files storedAnnals of Operations Research

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Decision-Making and Behavioral Economics Economic and Environmental Valuation Risk and Portfolio Optimization

Abstract

Abstract Attitudes towards multidimensional risk depend both on the shape of the indifference map under certainty and on the degree of concavity of the utility function representing preferences under risk. A decomposition of the risk premium is built on the new notion of “compensated risk aversion”. The balance between the two components is shown to depend on the association of the risks. Several applications are also presented, including the intertemporal model.

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References

1964Risk Aversion in the Small and in the Large 2011INDIVIDUAL RISK ATTITUDES: MEASUREMENT, DETERMINANTS, AND BEHAVIORAL CONSEQUENCES 2001The Economics of Risk and Time 2000Handbook of income distribution 1972Consumption decisions under uncertainty 1982Intertemporal Substitution in Macroeconomics 1974Risk aversion with many commodities 1982Relative Risk Aversion

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