Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption
Posted: 28 Nov 2005
There are 2 versions of this paper
Willingness to Pay for Risk Reduction and Risk Aversion Without the Expected Utility Assumption
Number of pages: 11
Posted: 02 Feb 2005
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Abstract
Introducing minimal assumptions on the individual preferences, I show that the Willingness To Pay for both a FSD and SSD reduction of risk may always be described as the sum of a mean effect, a pure risk effect and a wealth effect. As a result, the WTP of a risk-averse decision maker may be smaller than the willingness to pay of a risk-neutral one, for a large class of individual preferences' representation and a large class of risks.
Keywords: Risk premium, willingness to pay, first and second stochastic dominance shifts in risk
JEL Classification: D81
Suggested Citation: Suggested Citation
Langlais, Eric, Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption. Theory and Decision, August 2005, Available at SSRN: https://ssrn.com/abstract=848124 or http://dx.doi.org/10.2139/ssrn.645526
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