An understanding of risk and how to deal with it is an essential part of modern economics. Whether liability litigation for pharmaceutical firms or an individual's having insufficient wealth to retire, risk is something that can be recognized, quantified, analyzed, treated--and incorporated into...

This paper examines preferences towards particular classes of lottery pairs. We show how concepts such as prudence and temperance can be fully characterized by a preference relation over these lotteries. If preferences are defined in an expected-utility framework with differentiable utility, the...

We consider the effects of changes in the distribution of a background risk on the optimal risk taking behaviour of a risk- averse decision maker. In particular, we suppose that the background risk deteriorates via a first- or second-degree stochastic dominance shift. Our contention is that such...

Consider a simple two-state risk with equal probabilities for the two states. In particular, assume that the random wealth variable dominates via ith-order stochastic dominance for i=M,N. We show that the 50-50 lottery dominates the lottery via (N+M)th-order stochastic dominance. The basic idea...

We re-examine the utility premium of Friedman-Savage [Friedman, Milton and Savage, Leonard J., "The Utility Analysis of Choices Involving Risk." Journal of Political Economy 56, 1948, pp. 279-304.]. This measure is useful in understanding risky choices. For instance its reaction to an increased...

Consider a simple two-state risk with equal probabilities for the two states. In particular, assume that the random wealth variable Xi dominates Yi via ith-order stochastic dominance for i = M,N. We show that the 50-50 lottery [XN + YM, YN + XM] dominates the lottery [XN + XM, YN + YM] via (N +...