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Tradeoffs for Downside Risk-Averse Decision-Makers and the Self-Protection Decision

Abstract : In addition to risk aversion, decision-makers tend to be also downside risk averse. Besides the usual size for risk trade-off, this allows several other trade-offs to be considered. The decision to increase the level of self-protection generates five trade-offs each involving an unfavourable downside risk increase and an accompanying beneficial change. Five stochastic orders that correspond to these trade-offs are defined, characterised and used to prove comparative static theorems that provide information concerning the self-protection decision. The five stochastic orders are general in nature and can be applied in any decision model where downside risk aversion is assumed.
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https://hal.archives-ouvertes.fr/hal-02987025
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Submitted on : Tuesday, November 3, 2020 - 2:43:30 PM
Last modification on : Friday, November 26, 2021 - 2:24:11 PM

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Michel Denuit, Louis Eeckhoudt, Liqun Liu, Jack Meyer. Tradeoffs for Downside Risk-Averse Decision-Makers and the Self-Protection Decision. Geneva Risk and Insurance Review, Palgrave Macmillan, 2016, 41 (1), pp.19-47. ⟨10.1057/grir.2015.3⟩. ⟨hal-02987025⟩

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