Journal of Economics

, Volume 57, Issue 1, pp 69–93 | Cite as

Expected utility and the siegel paradox: A generalization

  • Ronny Aboudi
  • Dominique Thon
Articles

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.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Borell, C. (1973): “A Note on an Inequality for Re-arrangements.”Pacific Journal of Mathematics 47: 39–41.Google Scholar
  2. 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
  3. Epstein, L., and Tanny, S. (1980): “Increasing Generalized Correlation: A Definition and Some Economic Consequences.”Canadian Journal of Economics 8: 16–34.Google Scholar
  4. 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
  5. Hammond, J. (1974): “Simplifying the Choice Between Uncertain Prospects Where Preference Is Nonlinear.”Management Science 20: 1047–1072.Google Scholar
  6. McCullogh, J. (1975): “Operational Aspects of the Siegel Paradox.”Quarterly Journal of Economics 89: 170–172.Google Scholar
  7. Marshall, A., and Olkin, I. (1979):Inequalities: Theory of Majorization and Its Applications. New York: Academic Press.Google Scholar
  8. Siegel, J. (1972): “Risk, Interest Rates and the Forward Exchange.”Quarterly Journal of Economics 86: 303–309.Google Scholar
  9. Sinn, H.-W. (1989): “Expected Utility and the Siegel Paradox.”Journal of Economics/Zeitschrift für Nationalökonomie 50: 257–268.Google Scholar
  10. Tchen, A. (1980): “Inequalities for Distributions with Given Marginals.”Annals of Probability 8: 814–827.Google Scholar
  11. Thon, D., and Thorlund-Petersen, L. (1989): “The Value of Perfect Information in a Simple Investment Problem.”Information Economics and Policy, forthcoming.Google Scholar

Copyright information

© Springer-Verlag 1993

Authors and Affiliations

  • Ronny Aboudi
    • 1
  • Dominique Thon
    • 2
  1. 1.Department of Management ScienceUniversity of MiamiCoral GablesUSA
  2. 2.Bodø Graduate School of BusinessMørkvedNorway

Personalised recommendations