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Economic consequences of Nth-degree risk increases and Nth-degree risk attitudes

Author

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  • Elyès Jouini
  • Clotilde Napp
  • Diego Nocetti
Abstract
We study comparative statics of Nth-degree risk increases within a large class of problems that involve bidimensional payoffs and additive or multiplicative risks. We establish necessary and sufficient conditions for unambiguous impact of Nth-degree risk increases on optimal decision making. We develop a simple and intuitive approach to interpret these conditions : novel notions of directional Nth-degree risk aversion that are characterized via preferences over lotteries. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Elyès Jouini & Clotilde Napp & Diego Nocetti, 2013. "Economic consequences of Nth-degree risk increases and Nth-degree risk attitudes," Journal of Risk and Uncertainty, Springer, vol. 47(2), pages 199-224, October.
    • Handle: RePEc:kap:jrisku:v:47:y:2013:i:2:p:199-224
    DOI: 10.1007/s11166-013-9176-6
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    Citations

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    Cited by:

    1. Nocetti, Diego C., 2013. "The LeChatelier principle for changes in risk," Journal of Mathematical Economics, Elsevier, vol. 49(6), pages 460-466.
    2. Arthur E. Attema & Olivier L’Haridon & Gijs Kuilen, 2023. "An experimental investigation of social risk preferences for health," Theory and Decision, Springer, vol. 95(3), pages 379-403, October.
    3. Christoph Heinzel & Richard Peter, 2021. "Precautionary motives with multiple instruments [Motifs de précaution en cas de multiples instruments]," Working Papers hal-03484875, HAL.
    4. Thierry Chauveau, 2016. "Stochastic dominance, risk and disappointment: a synthesis," Post-Print halshs-01025102, HAL.
    5. Donatella Baiardi & Marco Magnani & Mario Menegatti, 2020. "The theory of precautionary saving: an overview of recent developments," Review of Economics of the Household, Springer, vol. 18(2), pages 513-542, June.
    6. Pablo Garcia Sanchez & Luca Marchiori & Olivier Pierrard, 2023. "Long-term care expenditures and investment decisions under uncertainty," LIDAM Discussion Papers IRES 2023006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    7. Vergara, Marcos & Bonilla, Claudio A., 2021. "Precautionary saving in mean-variance models and different sources of risk," Economic Modelling, Elsevier, vol. 98(C), pages 280-289.
    8. Heinzel Christoph & Richard Peter, 2021. "Precautionary motives with multiple instruments," Working Papers SMART 21-09, INRAE UMR SMART.
    9. Heinzel, Christoph & Peter, Richard, 2021. "Precautionary motives with multiple instruments," Working Papers 316521, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    10. Liqun Liu & William S. Neilson, 2019. "Alternative Approaches to Comparative n th-Degree Risk Aversion," Management Science, INFORMS, vol. 65(8), pages 3824-3834, August.
    11. Liu, Liqun, 2014. "Precautionary saving in the large: nth degree deteriorations in future income," Journal of Mathematical Economics, Elsevier, vol. 52(C), pages 169-172.
    12. Marzia Donno & Marco Magnani & Mario Menegatti, 2020. "Changes in multiplicative risks and optimal portfolio choice: new interpretations and results," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(1), pages 251-267, June.
    13. Christophe Courbage & Béatrice Rey, 2016. "Decision Thresholds and Changes in Risk for Preventive Treatment," Health Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 111-124, January.
    14. Gollier, Christian, 2021. "A general theory of risk apportionment," Journal of Economic Theory, Elsevier, vol. 192(C).
    15. Thierry Chauveau, 2014. "Stochastic dominance, risk and disappointment: a synthesis," Documents de travail du Centre d'Economie de la Sorbonne 14054rr, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Jan 2016.
    16. Mario Menegatti & Richard Peter, 2022. "Changes in Risky Benefits and in Risky Costs: A Question of the Right Order," Management Science, INFORMS, vol. 68(5), pages 3625-3634, May.
    17. Diego C. Nocetti, 2016. "Robust Comparative Statics of Risk Changes," Management Science, INFORMS, vol. 62(5), pages 1381-1392, May.
    18. Nocetti, Diego & Smith, William T., 2015. "Changes in risk and strategic interaction," Journal of Mathematical Economics, Elsevier, vol. 56(C), pages 37-46.
    19. Gao, Jianwei & Zhao, Feng, 2017. "Sufficient conditions of stochastic dominance for general transformations and its application in option strategy," Economics Discussion Papers 2017-40, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Comparative statics; Nth degree risk increases; Risk disaggregation; D8; D9; G11;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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