Distortion risk measures, ambiguity aversion and optimal effort

Christian Robert (1) , Pierre-Emmanuel Thérond (1)

1 SAF - Laboratoire de Sciences Actuarielle et Financière

We consider the class of concave distortion risk measures to study how choice is influenced by the decision-maker's attitude to risk and provide comparative static results. We also assume ambiguity about the probability distribution of the risk and consider a framework à la Klibanoff, Marinacci and Mukerji (2005) to study the value of information that resolves ambiguity. We show that this value increases with greater ambiguity, with greater ambiguity aversion, and in some cases with greater risk aversion. Finally we examine whether a more risk-averse and a more ambiguity-averse individual will invest in more effort to shift his initial risk distribution to a better target distribution.

Mots clés: Ambiguity; dual theory; risk measures; distorsion; optimal effort

Domaines: Gestion des risques [q-fin.RM]

Christian Robert, Pierre-Emmanuel Thérond. Distortion risk measures, ambiguity aversion and optimal effort. ASTIN Bulletin, 2014, 44 (2), pp.277-302. ⟨10.1017/asb.2014.3⟩. ⟨hal-00813199⟩