Abstract

http://ssrn.com/abstract=2112377
 


 



Local Utility and Multivariate Risk Aversion


Arthur Charpentier


National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE)

Alfred Galichon


Sciences Po - Department of Economics

Marc Henry


Pennsylvania State University

June 18, 2012

CIRANO - Scientific Publications 2012s-17

Abstract:     
We revisit Machina's local utility as a tool to analyze attitudes to multivariate risks. Using martingale embedding techniques, we show that for non-expected utility maximizers choosing between multivariate prospects, aversion to multivariate mean preserving increases in risk is equivalent to the concavity of the local utility functions, thereby generalizing Machina's result. To analyze comparative risk attitudes within the multivariate extension of rank dependent expected utility, we extend Quiggin's monotone mean and utility preserving increases in risk and show that the useful characterization given still holds in the multivariate case.

Number of Pages in PDF File: 22

Keywords: local utility, multivariate risk aversion, multivariate rank dependent utility, pessimism, multivariate Bickel-Lehmann dispersion

JEL Classification: D63, D81, C61

working papers series





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Date posted: July 18, 2012 ; Last revised: February 26, 2014

Suggested Citation

Charpentier, Arthur and Galichon, Alfred and Henry, Marc, Local Utility and Multivariate Risk Aversion (June 18, 2012). CIRANO - Scientific Publications 2012s-17. Available at SSRN: http://ssrn.com/abstract=2112377 or http://dx.doi.org/10.2139/ssrn.2112377

Contact Information

Arthur Charpentier
National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE) ( email )
92245 Malakoff Cedex
France
Alfred Galichon
Sciences Po - Department of Economics ( email )
27 rue Saint-Guillaume
Paris Cedex 07, 75337
France
Marc Henry (Contact Author)
Pennsylvania State University ( email )
University Park
State College, PA 16802
United States
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