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The values of relative risk aversion and prudence: a context-free interpretation. (English) Zbl 1176.91015

Summary: We apply to multiplicative lotteries the idea of preference for “harm disaggregation” that was used for additive lotteries in order to interpret the signs of successive derivatives of a utility function. In this way, we can explain in general terms why the values of the coefficients of relative risk aversion and relative prudence are usually compared respectively to 1 and 2. We also show how these values partition the sets of risk averse and/or prudent decision makers into two subgroups.

MSC:

91A35 Decision theory for games
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