On the strictly decreasing utility (value) premium of Friedman-Savage
Social Science Research Network
Utility premium, Value premium, Comparative statics, Changes in risk, Precautionary saving
This paper re-investigates the utility premium of Friedman-Savage (1948). We show that monotone comparative statics predictions under changes in risk are assured by strictly decreasing utility premium alone. Applications to the demand for precautionary saving, the precautionary effort and the optimal portfolio problem are discussed. We also extend the results to non-expected-utility framework and show that the major precautionary saving results in expected-utility setting can be extended to the case of Selden/Kreps-Porteus preferences.
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Li, J., & Wang, J. (2014). On the strictly decreasing utility (value) premium of Friedman-Savage. Social Science Research Network. Retrieved from http://dx.doi.org/10.2139/ssrn.2446779