This paper analyzes increased risk aversion in the presence of two risks. Necessary and sufficient conditions for increased risk aversion across the domain of the foreground risk are found for changes in both the foreground and background risks. Preferences that satisfy the necessary and...

We introduce the notion of cross-risk vulnerability to generalize the concept of risk vulnerability introduced by Gollier and Pratt [Gollier, C., Pratt, J.W. 1996. Risk vulnerability and the tempering effect of background risk. Econometrica 64, 1109–1124]. While risk vulnerability captures the...

This note gives the conditions on preferences to guarantee the monotonicity of asset prices when the payoffs of the risky asset change in the sense of the Nth stochastic dominance and with an Nth degree increase in risk. Those conditions are expressed in terms of the sign of the successive...

We analyze insurance demand when insurable losses come with an uninsurable zero‐mean background risk that increases in the loss size. If the individual is risk vulnerable, loss‐dependent background risk triggers a precautionary insurance motive and increases optimal insurance demand....

We define a class of risk-taking-neutral (RTN) background risks. These background risks have the property that they will not alter decisions made with respect to another risk, for individuals with HARA utility. If we wish to compare a decision made with and without some exogenous background...

We define a class of risk-taking-neutral (RTN) background risks. These background risks have the property that they will not alter decisions made with respect to another risk, for individuals with HARA utility. If we wish to compare a decision made with and without some exogenous background...