Risk aversion, downside risk aversion and paying for stochastic improvementsCitation formats

Standard

Risk aversion, downside risk aversion and paying for stochastic improvements. / Chiu, W. Henry.

In: GENEVA Risk and Insurance Review, Vol. 37, No. 1, 03.2012, p. 1-26.

Research output: Contribution to journalArticle

Harvard

APA

Vancouver

Author

Chiu, W. Henry. / Risk aversion, downside risk aversion and paying for stochastic improvements. In: GENEVA Risk and Insurance Review. 2012 ; Vol. 37, No. 1. pp. 1-26.

Bibtex

@article{cbf6a631d79c40f381effe2f062aa664,
title = "Risk aversion, downside risk aversion and paying for stochastic improvements",
abstract = "This paper considers the relationship between risk preferences and the willingness to pay for stochastic improvements. We show that if the stochastic improvement satisfies a double-crossing condition, then a decision maker with utility v is willing to pay more than a decision maker with utility u, if v is both more risk averse and less downside risk averse than u. As the condition always holds in the case of self-protection, the result implies novel characterizations of individuals willingness to pay to reduce the probability of loss. By establishing a general result on the correspondence between an individual's willingness to pay, and his optimal purchase of stochastic improvement when there is a given relationship between stochastic improvements and the amount paid for them, we further show that all results on the willingness to pay can be applied directly to characterize the conditions under which a more risk averse individual will optimally choose to buy more stochastic improvement. Generalizations of existing results on optimal choice of self-protection can be obtained as corollaries. {\circledC} 2012 The International Association for the Study of Insurance Economics.",
author = "Chiu, {W. Henry}",
year = "2012",
month = "3",
doi = "10.1057/grir.2011.1",
language = "English",
volume = "37",
pages = "1--26",
journal = "GENEVA Risk and Insurance Review",
issn = "1554-9658",
publisher = "Palgrave Macmillan Ltd.",
number = "1",

}

RIS

TY - JOUR

T1 - Risk aversion, downside risk aversion and paying for stochastic improvements

AU - Chiu, W. Henry

PY - 2012/3

Y1 - 2012/3

N2 - This paper considers the relationship between risk preferences and the willingness to pay for stochastic improvements. We show that if the stochastic improvement satisfies a double-crossing condition, then a decision maker with utility v is willing to pay more than a decision maker with utility u, if v is both more risk averse and less downside risk averse than u. As the condition always holds in the case of self-protection, the result implies novel characterizations of individuals willingness to pay to reduce the probability of loss. By establishing a general result on the correspondence between an individual's willingness to pay, and his optimal purchase of stochastic improvement when there is a given relationship between stochastic improvements and the amount paid for them, we further show that all results on the willingness to pay can be applied directly to characterize the conditions under which a more risk averse individual will optimally choose to buy more stochastic improvement. Generalizations of existing results on optimal choice of self-protection can be obtained as corollaries. © 2012 The International Association for the Study of Insurance Economics.

AB - This paper considers the relationship between risk preferences and the willingness to pay for stochastic improvements. We show that if the stochastic improvement satisfies a double-crossing condition, then a decision maker with utility v is willing to pay more than a decision maker with utility u, if v is both more risk averse and less downside risk averse than u. As the condition always holds in the case of self-protection, the result implies novel characterizations of individuals willingness to pay to reduce the probability of loss. By establishing a general result on the correspondence between an individual's willingness to pay, and his optimal purchase of stochastic improvement when there is a given relationship between stochastic improvements and the amount paid for them, we further show that all results on the willingness to pay can be applied directly to characterize the conditions under which a more risk averse individual will optimally choose to buy more stochastic improvement. Generalizations of existing results on optimal choice of self-protection can be obtained as corollaries. © 2012 The International Association for the Study of Insurance Economics.

U2 - 10.1057/grir.2011.1

DO - 10.1057/grir.2011.1

M3 - Article

VL - 37

SP - 1

EP - 26

JO - GENEVA Risk and Insurance Review

JF - GENEVA Risk and Insurance Review

SN - 1554-9658

IS - 1

ER -