Risk aversion with two risks : a theoretical extension
Journal of Mathematical Economics
Risk aversion, Risk apportionment, Background risk, Expectation dependence, Bivariate utility function
We identify new conditions ensuring risk aversion in the sense of Arrow–Pratt in a two-argument utility framework in which a financial risk is accompanied by a background risk. Our results generalize the findings of Finkelshtain et al. (1999). We consider a sequence of possible dependence among risks. We also provide an empirical example showing that second-order expectation dependence cannot be ignored in determining risk aversion with two risks.
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Li, J. (2016). Risk aversion with two risks : a theoretical extension. Journal of Mathematical Economics, 63, 100-105. doi: 10.1016/j.jmateco.2016.01.002