When can expected utility handle first-order risk aversion?

• 成果类型: Article
• 署名作者: Dionne, Georges; Li, Jingyuan
• 署名单位: Universite de Montreal; HEC Montreal; Lingnan University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2014.09.019
• 发表日期: 2014
• 页码: 403-422
• 关键词: Expected utility theory; First-order conditional dependent risk aversion; background risk; equity premium puzzle; Consumption risk in business cycles; Rank-dependent expected utility model

摘要

Expected utility functions are limited to second-order (conditional) risk aversion, while non-expected utility functions can exhibit either first-order or second-order (conditional) risk aversion. We extend the concept of orders of conditional risk aversion to orders of conditional dependent risk aversion. We show that first-order conditional dependent risk aversion is consistent with the framework of the expected utility hypothesis. Our theoretical result proposes new insights into economic and financial applications such as the equity premium puzzle, the cost of business cycles, and stock market participation. Our model is compared to the rank-dependent expected utility model. (c) 2014 Elsevier Inc. All rights reserved.