First-order risk aversion happens when the risk premium π a decision maker is willing to pay to avoid the lottery t·ε̃, E[ε̃] = 0, is proportional, for small t, to t. Equivalently, ∂π/∂t|t=0+>0. We show that first-order risk aversion is equivalent to a certain non-differentiability of some of the local utility functions (Machina ).
|Number of pages||5|
|State||Published - 1 Jan 1997|
ASJC Scopus subject areas
- Economics and Econometrics