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Theory and Decision

, Volume 71, Issue 2, pp 227–234 | Cite as

Risk vulnerability: a graphical interpretation

  • Louis Eeckhoudt
  • Béatrice ReyEmail author
Article

Abstract

The article gives a graphical interpretation of the concept of risk vulnerability. It shows that in a specific context of binary lotteries the assumption of risk vulnerability adds to prudence what the assumption of decreasing absolute risk aversion adds to risk aversion. We end the presentation showing that results can be extended to the concept of multiplicative risk vulnerability.

Keywords

Decreasing absolute risk aversion Decreasing relative risk aversion Prudence Multiplicative risk vulnerability Risk vulnerability 

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References

  1. Franke G., Schlesinger H., Stapleton R. C. (2006) Multiplicative background risk. Management Science 52: 146–153CrossRefGoogle Scholar
  2. Gollier C. (2001) The economics of risk and time. MIT Press, Cambridge, MAGoogle Scholar
  3. Gollier C., Pratt J. W. (1996) Risk vulnerability and the tempering effect of background risk. Econometrica 64: 1109–1124CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  1. 1.IÉSEG School of ManagementLilleFrance
  2. 2.CORE, Université de LouvainLouvainBelgium
  3. 3.Université de Lyon, Université Lyon 1, ISFA Actuarial SchoolLyon Cedex 07France

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