What are the determinants of the optimal level of effort to reduce the probability of a loss to occur? Whereas most of the literature on this question focused on risk aversion, we show that the concept of prudence (i.e., a positive third derivative of the utility function) is essential to answer...

This paper is concerned with the effect of increases in risk on optimal decision variables for the class of linear payoffs. The authors show that, for this class of payoffs, one can extend the class of admissible increases in risk and obtain the desirable comparative statics properties. They...