Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption

Posted: 28 Nov 2005

See all articles by Eric Langlais

Eric Langlais

EconomiX, CNRS & University of Paris Ouest

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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

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

Eric Langlais (Contact Author)

EconomiX, CNRS & University of Paris Ouest ( email )

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