Greater Mutual Aggravation

5 Pages Posted: 9 Jan 2016 Last revised: 8 Jan 2017

See all articles by Sebastian Ebert

Sebastian Ebert

Frankfurt School of Finance & Management gemeinn├╝tzige GmbH

Diego Nocetti

Clarkson University

Harris Schlesinger

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

Date Written: January 6, 2017

Abstract

A large strand of research has identified when (i) a single risk is undesirable and (ii) two independent risks aggravate each other. We extend this line of inquiry by establishing when (iii) mutual aggravation is greater for greater risks. This natural property of \textit{greater mutual aggravation} explains recent experimental findings on higher-order risk preferences, and can guide managerial behavior when risks in the decision environment become more severe.

Keywords: mixed risk aversion, mutual aggravation, risk apportionment, stochastic dominance, utility premium, prudence

JEL Classification: D81, D91

Suggested Citation

Ebert, Sebastian and Nocetti, Diego and Schlesinger, Harris, Greater Mutual Aggravation (January 6, 2017). Netspar Discussion Paper No. 01/2016-002, Available at SSRN: https://ssrn.com/abstract=2712627 or http://dx.doi.org/10.2139/ssrn.2712627

Sebastian Ebert (Contact Author)

Frankfurt School of Finance & Management gemeinn├╝tzige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Diego Nocetti

Clarkson University ( email )

Potsdam, NY 13699-5780
United States

Harris Schlesinger

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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