Risk Attitudes, Buying and Selling Price for a Lottery and Simple Strategies

• Autorzy: Michał Lewandowski
• Języki publikacji: EN

Abstrakty

EN

This paper defines the concept of simple strategy and introduces three kinds of simple strategies: wealth-invariant, scale-invariant and "wealthier-accept more". For three commonly used utility function families: CARA, CRRA and DARA equivalent characterizations are obtained in terms of the corresponding simple strategy, in terms of the buying and selling price properties, and in terms of the utility function properties as expressed by Cauchy functional equations. Moreover, an extension of famous Pratt (1964) theorem is proved which involves buying price for a lottery as an alternative measure of comparative risk aversion. Additionally a number of propositions on both selling and buying price for a lottery and CRRA utility class are proved. (original abstract)

Słowa kluczowe

PL

Ryzyko cenowe; Strategia inwestycyjna; Funkcja użyteczności; Równanie funkcyjne

EN

Price risk; Investment strategy; Utility functions; Functional equation

• Czasopismo: Central European Journal of Economic Modelling and Econometrics (CEJEME)
• Rocznik: 2013
• Tom: 5
• Numer: nr 1
• Strony: 1-34

Twórcy

autor

Michał Lewandowski

• Warsaw School of Economics, Poland

Bibliografia

• Arrow, K. J. (1965). Aspects of the Theory of Risk-bearing. Yrjo Jahnsson Lectures, Helsinki.
• Aumann R. J., Kurz M. (1977). Power and taxes. Econometrica 45 (5), 1137-1161.
• Aumann R. J., Serrano R. (2008). An economic index of riskiness. Journal of Political Economy 116, 810-836
• Barberis N., Huang M. (2009). Preferences with frames: a new utility specification that allows for the framing of risks, Journal of Economic Dynamics and Control
• Foster, D. and S. Hart (2007), An operational measure of riskiness.
• LeRoy, S. F. and J. Werner (2001). Principles of Financial Economics. Cambridge University Press
• Lewandowski, M. (2011). Buying and selling price for risky lotteries and expected utility theory with gambling wealth. http://ssrn.com/abstract=2189400.
• Pratt, J. W. (1964). Risk aversion in the small and in the large. Econometrica 32, 122-136.
• Raiffa, H. (1968). Decision Analysis: Introductory Lectures on Choices Under Uncertainty. Addison-Wesley 22

Identyfikatory

DOI

DOI: 10.24425/cejeme.2013.119251