Multiplicative background risk

• 成果类型: Article
• 署名作者: Franke, G; Schlesinger, H; Stapleton, RC
• 署名单位: University of Konstanz; University of Alabama System; University of Alabama Tuscaloosa; University of Manchester
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1050.0450
• 发表日期: 2006
• 页码: 146-153
• 关键词: affiliated utility function; background risk; diffidence theorem; multiplicative risks; multiplicative risk vulnerability; risk vulnerability

摘要

Although there has been much attention in recent years on the effects of additive background risks, the same is not true for its multiplicative counterpart. We consider random wealth of the multiplicative form i, where i and P are statistically independent random variables. We assume that x is endogenous to the economic agent but that P is an exogenous and nontraclable background risk that represents a type of market incompleteness. Our main focus is on how the presence of the multiplicative background risk y affects risk-taking behavior for decisions on the choice of x. We extend the results of Gollier and Pratt (1996) to characterize conditions on preferences that lead to more cautious behavior.