Moment characterization of higher‐order risk preferences

Moment characterization of higher‐order risk preferences

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Article ID: iaor2013618
Volume: 74
Issue: 2
Start Page Number: 267
End Page Number: 284
Publication Date: Feb 2013
Journal: Theory and Decision
Authors:
Keywords: risk, statistics: distributions
Abstract:

This article presents a characterization of higher‐order risk preferences such as prudence or temperance in terms of statistical moments. Our results, which are generalizations of Roger (2011) and Ekern (1980), give a better understanding of how higher‐order risk preferences relate to skewness preference and kurtosis aversion. While they are not based on expected utility theory, an implication within that theory is that all commonly used utility functions exhibit skewness preference and kurtosis aversion.

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