Changes in Risky Benefits and in Risky Costs: A Question of the Right Order

• 成果类型: Article
• 署名作者: Menegatti, Mario; Peter, Richard
• 署名单位: University of Parma; University of Iowa
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.4081
• 发表日期: 2022
• 页码: 3625-3634
• 关键词: higher-order risk; risk aversion; comparative statics; decision making; stochastic dominance

摘要

We organize and extend findings on the comparative static effects of risk changes on optimal behavior in a unifying expected utility model. We determine restrictions on preferences for clear-cut results. Risk increases of a benefit are compensated by lowering exposure to risk. For risk increases of a cost, the response depends on the order of the risk change. This discrepancy arises because even-order risk increases of a cost raise the riskiness of the payoff distribution, whereas odd-order risk increases of a cost reduce it. We identify the stochastic dominance orders to resolve this discrepancy and discuss specific decision problems as applications.