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Lattices and Lotteries in Apportioning Risk

17 Pages Posted: 2 Dec 2014  

Harris Schlesinger

University of Alabama; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 28, 2014

Abstract

Although risk aversion has been used in economic models for over 275 years, the past few decades have shown how higher order risk attitudes are also quite important. A behavioral approach to defining such risk attitudes was developed by Eeckhoudt and Schlesinger (2006), based upon simple lottery preference. This article show how the mathematics of lattice theory can be used to model these lottery preferences. In addition to modeling a simple lattice structure, I show how such lattices can be extended in order to develop a better understanding of higher order risk attitudes.

Keywords: risk apportionment, mixed risk aversion, mixed risk loving, lattice theory, submodular function

JEL Classification: D81

Suggested Citation

Schlesinger, Harris, Lattices and Lotteries in Apportioning Risk (November 28, 2014). CESifo Working Paper Series No. 5067. Available at SSRN: https://ssrn.com/abstract=2532884

Harris Schlesinger (Contact Author)

University of Alabama ( email )

P.O. Box 870244
200 Alston Hall, Box 870224
Tuscaloosa, AL 35487
United States
205-348-7858 (Phone)
205-348-0590 (Fax)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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