The economic theory of decision making under risk has seen remarkable advances over the 50 years since Pratt’s (1964) characterization of risk aversion under expected utility. We review developments in three key areas to which Louis Eeckhoudt has made significant contributions: (1) increases...

In this paper, we compare the attitude towards current risk of two expected-utility-maximizing investors who are identical except that the first investor will live longer than the second one. It is often suggested that the young investor should take more risks than the old investor. We consider...

We show in this article that bang-bang portfolio strategies where the investor is alternatively 100% in equity and 100% in cash are dynamically inefficient. Our proof of this is based on a simple second-order stochastic dominance (SSD) argument. It implies that this is true for any decision...

The Precautionary Principle has provided the foundations for building a new risk regulatory pattern under scientific uncertainty. This paper investigates how classical economic theory may, or may not, justify the Precautionary Principle. It examines the link between irreversibility, the prospect...

In this paper we address the problem of determining whether adding independent risks or subdividing them is a good substitute for insurance. Despite the fact that accepting more i.i.d. risks increases total risk, it is shown that some risk-averse decision makers can rationally reduce their...

In this article, we show how the order of Linear Stochastic Dominance proposed by Gollier (1995) can be applied to situations with dependent risky assets. This order was shown to be the least constrained necessary and sufficient condition to guarantee that all risk-averse agents reduce their...