The value of risk reduction: new tools for ...
Document type :
Article dans une revue scientifique
Title :
The value of risk reduction: new tools for an old problem
Author(s) :
Crainich, David [Auteur]
Lille - Economie et Management [LEM]
Eeckhoudt, Louis R. [Auteur]
IÉSEG School Of Management [Puteaux]
Lille - Economie et Management [LEM]
Hammitt, James K. [Auteur]

Lille - Economie et Management [LEM]
Eeckhoudt, Louis R. [Auteur]
IÉSEG School Of Management [Puteaux]
Lille - Economie et Management [LEM]
Hammitt, James K. [Auteur]
Journal title :
Theory and Decision
Pages :
403--413
Publisher :
Springer Verlag
Publication date :
2014-10
ISSN :
0040-5833
English keyword(s) :
Risk aversion
Prudence
Self-protection
Value per statistical life
Prudence
Self-protection
Value per statistical life
HAL domain(s) :
Sciences de l'Homme et Société/Economies et finances
English abstract : [en]
The relationship between willingness to pay (WTP) to reduce the probability of an adverse event and the degree of risk aversion is ambiguous. The ambiguity arises because paying for protection worsens the outcome in the ...
Show more >The relationship between willingness to pay (WTP) to reduce the probability of an adverse event and the degree of risk aversion is ambiguous. The ambiguity arises because paying for protection worsens the outcome in the event the adverse event occurs, which influences the expected marginal utility of wealth. Using the concept of downside risk aversion or prudence, we characterize the marginal WTP to reduce the probability of the adverse event as the product of WTP in the case of risk neutrality and an adjustment factor. For the univariate case (e.g., risk of financial loss), the adjustment factor depends on risk aversion and prudence with respect to wealth. For the bivariate case (e.g., risk of death or illness), the adjustment factor depends on risk aversion and cross-prudence in wealth.Show less >
Show more >The relationship between willingness to pay (WTP) to reduce the probability of an adverse event and the degree of risk aversion is ambiguous. The ambiguity arises because paying for protection worsens the outcome in the event the adverse event occurs, which influences the expected marginal utility of wealth. Using the concept of downside risk aversion or prudence, we characterize the marginal WTP to reduce the probability of the adverse event as the product of WTP in the case of risk neutrality and an adjustment factor. For the univariate case (e.g., risk of financial loss), the adjustment factor depends on risk aversion and prudence with respect to wealth. For the bivariate case (e.g., risk of death or illness), the adjustment factor depends on risk aversion and cross-prudence in wealth.Show less >
Language :
Anglais
Peer reviewed article :
Oui
Audience :
Internationale
Popular science :
Non
Collections :
Source :
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