Skip to main content
SpringerLink
Log in

Expected utility and the siegel paradox: A generalization

  • Articles
  • Published:
Journal of Economics Aims and scope Submit manuscript

Abstract

It was recently shown by Sinn that, under certain conditions, because of the Siegel paradox, even risk-averse agents can find speculation on forward currency markets attractive. His assumptions are that the spot and forward rates are identically distributed and statistically independent and that the agents' coefficients of relative risk aversion are constant and inferior to unity. We show that both assumptions of statistical independence and constant relative risk aversion can be dramatically relaxed.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Similar content being viewed by others

References

  • Borell, C. (1973): “A Note on an Inequality for Re-arrangements.”Pacific Journal of Mathematics 47: 39–41.

    Google Scholar 

  • Cambanis, S., Simons, G., and Stout, W. (1976): “Inequalities forEk(X, Y) when Marginals Are Fixed.”Zeitschrift für Wahrscheinlichkeitstheorie und verwandte Gebiete 36: 285–294.

    Google Scholar 

  • Epstein, L., and Tanny, S. (1980): “Increasing Generalized Correlation: A Definition and Some Economic Consequences.”Canadian Journal of Economics 8: 16–34.

    Google Scholar 

  • Fulkerson, D. (1964): “The Maximum Number of Disjoint Permutations Contained in a Matrix of Zeros and Ones.”Canadian Journal of Mathematics 16: 729–735.

    Google Scholar 

  • Hammond, J. (1974): “Simplifying the Choice Between Uncertain Prospects Where Preference Is Nonlinear.”Management Science 20: 1047–1072.

    Google Scholar 

  • McCullogh, J. (1975): “Operational Aspects of the Siegel Paradox.”Quarterly Journal of Economics 89: 170–172.

    Google Scholar 

  • Marshall, A., and Olkin, I. (1979):Inequalities: Theory of Majorization and Its Applications. New York: Academic Press.

    Google Scholar 

  • Siegel, J. (1972): “Risk, Interest Rates and the Forward Exchange.”Quarterly Journal of Economics 86: 303–309.

    Google Scholar 

  • Sinn, H.-W. (1989): “Expected Utility and the Siegel Paradox.”Journal of Economics/Zeitschrift für Nationalökonomie 50: 257–268.

    Google Scholar 

  • Tchen, A. (1980): “Inequalities for Distributions with Given Marginals.”Annals of Probability 8: 814–827.

    Google Scholar 

  • Thon, D., and Thorlund-Petersen, L. (1989): “The Value of Perfect Information in a Simple Investment Problem.”Information Economics and Policy, forthcoming.

Download references

Author information

Author notes

  1. Ronny Aboudi

    Present address: Department of Management Science, University of Miami, P.O.B. 248237, 33124-8237, Coral Gables, FL, USA

Authors and Affiliations

  1. Bodø Graduate School of Business, P.O.B. 6003, N-8016, Mørkved, Norway

    Dominique Thon

Authors
  1. Ronny Aboudi
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Dominique Thon
    View author publications

    You can also search for this author in PubMed Google Scholar

Additional information

Thanks are due to H.-W. Sinn, W. T. Epps, and an anonymous referee for useful comments. Thon would like to thank the Department of Economics and The Center for Law and Economics of the University of Miami for research support, and the Prof. W. Keilhau's Memorial Fund for financial support.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Aboudi, R., Thon, D. Expected utility and the siegel paradox: A generalization. Zeitschr. f. Nationalökonomie 57, 69–93 (1993). https://doi.org/10.1007/BF01237437

Download citation

  • Received:

  • Revised:

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF01237437

Keywords

Search

Navigation