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  3. American Economic Review
  4. March 2006
  5. Putting Risk in Its Proper Place

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Putting Risk in Its Proper Place

  • Louis Eeckhoudt
  • Harris Schlesinger
American Economic Review
vol. 96, no. 1, March 2006
(pp. 280–289)
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Abstract

This paper examines preferences toward particular classes of lottery pairs. We show how such concepts as prudence and temperance can be fully characterized by a preference relation over these lotteries. If preferences are defined in an expected-utility framework with differentiable utility, the direction of preference for a particular class of lottery pairs is equivalent to signing the nth derivative of the utility function. What makes our characterization appealing is its simplicity, which seems particularly amenable to experimentation.

Citation

Eeckhoudt, Louis, and Harris Schlesinger. 2006. "Putting Risk in Its Proper Place." American Economic Review, 96 (1): 280–289. DOI: 10.1257/000282806776157777

JEL Classification

  • D81 Criteria for Decision-Making under Risk and Uncertainty