Relative Risk Aversion, Relative Prudence and Comparative Statics Under Uncertainty: The Case of (Mu,Sigma)-Preferences

12 Pages Posted: 3 May 2004

See all articles by Thomas Eichner

Thomas Eichner

University of Siegen - School of Economic Disciplines

Andreas Wagener

Leibniz Universit├Ąt Hannover - Economics and Business Administration Area; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Vienna University of Economics and Business Administration

Abstract

From the expected-utility approach, relative risk aversion being smaller than one and relative prudence being smaller than two emerge as preference restrictions that fully determine the optimal responses of decisions under uncertainty to certain shifts in probability distributions. We characterize the magnitudes of relative risk aversion and relative prudence in terms of the two-parameter, mean-standard deviation approach. We demonstrate that this characterization is instrumental in obtaining comparative static results in the two-parameter setting. We further relate our findings to the results in the expected-utility framework.

Keywords: Relative risk aversion, relative prudence, mean-standard deviation preferences, comparative statics

JEL Classification: D81, D21

Suggested Citation

Eichner, Thomas and Wagener, Andreas, Relative Risk Aversion, Relative Prudence and Comparative Statics Under Uncertainty: The Case of (Mu,Sigma)-Preferences. Bulletin of Economic Research, Vol. 56, No. 2, pp. 159-170, April 2004, Available at SSRN: https://ssrn.com/abstract=517083

Thomas Eichner

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

Andreas Wagener (Contact Author)

Leibniz Universit├Ąt Hannover - Economics and Business Administration Area ( email )

Koenigsworther Platz 1
30167 Hannover
Germany

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

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Vienna University of Economics and Business Administration ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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