Abstract
A number of generalizations of Expected Utility theory have been developed in recent years. However consideration of issues of increasing risk has been dominated by the notion of second stochastic dominance, developed in the Expected Utility context to characterize the preferences of risk-averse individuals over distributions. Rothschild and Stiglitz have given a number of interpretations of increasing risk, all equivalent to second stochastic dominance. In this paper, alternative concepts of increasing risk and of risk-aversion are discussed, and a result analogous to that of Rothschild and Stiglitz is derived. Although these concepts are derived in relation to generalized models they have attractive properties in the standard EU model, particularly in relation to portfolio theory.
The development of the ideas presented in this paper has been greatly assisted by discussions with colleagues including Jock Anderson, Mark Machina and Uzi Segal. They are not of course responsible for any errors.
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© 1991 Springer Science+Business Media Dordrecht
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Quiggin, J. (1991). Increasing Risk: Another Definition. In: Chikán, A. (eds) Progress in Decision, Utility and Risk Theory. Theory and Decision Library, vol 13. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-3146-9_21
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DOI: https://doi.org/10.1007/978-94-011-3146-9_21
Publisher Name: Springer, Dordrecht
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