We show that there exists a probability measure under which the CAPM formula for expected returns holds for general utility functions and probability distributions. This probability measure, the ``downside risk neutral'' measure, is adjusted to incorporate the effects of downside risk and higher...

While it reduces the probability of facing a primary (or vaccine-preventable) disease, vaccination may also introduce the risk of facing vaccine induced side effects or secondary diseases. In this paper, we address the link between this feature of vaccination and attitudes toward risk. Risk...

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 +...

How does risk affect saving? Empirical work typically examines the effects of detectible differences in risk within the data. How these differences affect saving in theoretical models depends on the metric one uses for risk. For labor-income risk, second-degree increases in risk require prudence...

The effect of health status on portfolio decisions has been extensively studied from an empirical viewpoint. In this paper, we propose a theoretical model of individuals' choice of financial assets under bivariate utility functions depending on wealth and health. Our model relies on the...

In this paper, we indicate that risk vulnerability can be associated with the concept of downside risk aversion (DRA) and an assumption about its behavior, namely that it is decreasing in wealth. Specifically, decreasing downside risk aversion in the Arrow-Pratt and Ross senses are respectively...

Stochastic dominance permits a partial ordering of alternatives (probability distributions on consequences) based only on partial information about a decision maker's utility function. Univariate stochastic dominance has been widely studied and applied, with general agreement on classes of...

In this paper we apply to multiplicative lotteries the idea of preference for "harm disaggregation" that was used for additive lotteries in order to interpret the signs of successive derivatives of a utility function. In this way, we can explain in general terms why the values of the...

Mixed risk aversion (Caballe and Pomansky, 1996) defines the class of increasing utility functions that have derivatives alternating in sign, with positive odd derivatives and negative even derivatives. In this article, we characterize comparative mixed risk aversion so as to answer the...