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- Title
Comparing risk aversion in a probability triangle.
- Authors
Becker, Robert A.
- Abstract
Summary. An agent's acceptance set consists of the probability distributions preferred to the status quo. One agent is more risk averse than another if the more risk averse agent's acceptance set is a proper subset of the less risk averse agent's acceptance set. An agent's odds premium expresses the odds in favor of winning the largest cash prize in a lottery over the best and worst alternatives that is indifferent to the the agent's initial wealth. Comparisons of two agents odds premia completely characterizes the risk aversion relations between them when facing lotteries in a probability triangle. The result applies to expected utility and some non-expected utility theories.
- Subjects
DISTRIBUTION (Economic theory); PROBABILITY theory; LOTTERIES; UTILITY theory; RISK
- Publication
Economic Theory, 2001, Vol 17, Issue 3, p739
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/PL00004127