A Good Sign for Multivariate Risk Taking
26 Pages
Posted: 5 Oct 2006
Facultes Universitaires Catholiques de Mons (FUCAM)
University of Lyon 1 - ISFA Graduate School of Actuarial Science
University of Alabama; CESifo (Center for Economic Studies and Ifo Institute)
Date Written: September 2006
Abstract
Decisions under risk are often multidimensional, where the preferences of the decision maker depend on several attributes. For example, an individual might be concerned about both her level of wealth and the condition of her health. Many times the signs of successive cross derivatives of a utility function play an important role in these models. However, there has not been a simple and intuitive interpretation for the meaning of such derivatives. The purpose of this paper is to give such an interpretation. In particular, we provide an equivalence between the signs of these cross derivatives and individual preference within a particular class of simple lotteries.
Keywords: correlation aversion, multivariate risk, prudence, risk aversion, temperance
JEL Classification: D81
Suggested Citation:
Suggested Citation
Eeckhoudt, Louis and Rey, Béatrice and Schlesinger, Harris, A Good Sign for Multivariate Risk Taking (September 2006). CESifo Working Paper Series No. 1796. Available at SSRN: https://ssrn.com/abstract=935012
