A Benchmark Value for Elative Prudence

18 Pages Posted: 11 Feb 2010

See all articles by Louis Eeckhoudt

Louis Eeckhoudt

Catholic University of Lille - IESEG School of Management

Johanna Etner

Université Paris V Rene Descartes

Fred Schroyen

Norwegian School of Economics (NHH) - Department of Economics

Date Written: October 9, 2007

Abstract

In this paper we apply to multiplicative lotteries the idea of preference for "harm disaggregation" that was used for additive lotteries in order to interpret the signs of successive derivatives of a utility function. In this way, we can explain in general terms why the values of the coefficients of relative risk aversion and relative prudence are usually compared respectively to 1 and 2. We also show how these values partition the sets of risk averse and/or prudent decision makers into two subgroups.

Keywords: Relative Risk Aversion, Relative Prudence

JEL Classification: D81

Suggested Citation

Eeckhoudt, Louis and Etner, Johanna and Schroyen, Fred, A Benchmark Value for Elative Prudence (October 9, 2007). Mathematical Social Sciences, Vol. 58, pp. 1-7, 2009, NHH Dept. of Economics Discussion Paper No. 26-2007, Available at SSRN: https://ssrn.com/abstract=1550613

Louis Eeckhoudt

Catholic University of Lille - IESEG School of Management ( email )

3 Rue de la Digue
Office: A321
Puteaux, 92800
France

Johanna Etner

Université Paris V Rene Descartes ( email )

31, avenue Bosquet
Paris, 75270
France

Fred Schroyen (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

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