Health and Portfolio Choices: A Diffidence Approach

European Journal of Operational Research, Forthcoming

20 Pages Posted: 10 Jan 2016 Last revised: 11 Oct 2016

See all articles by David Crainich

David Crainich

Catholic University of Lille - Faculté Libre des Sciences Economiques (FLSE)

Louis Eeckhoudt

Catholic University of Lille - IESEG School of Management

Olivier Le Courtois

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control

Date Written: July 22, 2016

Abstract

The effect of health status on portfolio decisions has been extensively studied from an empirical viewpoint. In this paper, we propose a theoretical model of individuals’ choice of financial assets under bivariate utility functions depending on wealth and health. Our model relies on the diffidence theorem, which pertains to the class of hyperplane separation theorems. We establish the conditions under which the share of wealth held in risky assets falls as: 1) individuals’ health status deteriorates and; 2) individuals’ health status becomes risky. These conditions are shown to be related to the behaviour of the intensities of correlation aversion and of cross prudence as wealth increases.

Keywords: Health, Weath, Diffidence Theorem, Indices, Correlation Aversion, Cross Prudence

JEL Classification: D81

Suggested Citation

Crainich, David and Eeckhoudt, Louis and Le Courtois, Olivier Arnaud, Health and Portfolio Choices: A Diffidence Approach (July 22, 2016). European Journal of Operational Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2712989 or http://dx.doi.org/10.2139/ssrn.2712989

David Crainich

Catholic University of Lille - Faculté Libre des Sciences Economiques (FLSE) ( email )

60 Boulevard Vauban
Lille Cedex, 59030
France

Louis Eeckhoudt

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

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

Olivier Arnaud Le Courtois (Contact Author)

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control ( email )

23, av. Guy de Collongue
69134 Ecully Cedex
France

Register to save articles to
your library

Register

Paper statistics

Downloads
68
rank
316,071
Abstract Views
270
PlumX Metrics