First-order risk aversion and non-differentiability

Uzi Segal, Avia Spivak

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

Abstract

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 [7]).

Original languageEnglish
Pages (from-to)179-183
Number of pages5
JournalEconomic Theory
Volume9
Issue number1
DOIs
StatePublished - 1 Jan 1997

ASJC Scopus subject areas

  • Economics and Econometrics

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