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Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption

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Abstract

By means of minimal assumptions on the individual preferences, I show that the Willingness To Pay (WTP) for both a FSD and SSD reduction of risk is the sum of a mean effect, a pure risk effect and a wealth effect. As a result, the WTP of a risk-averse decision maker may be lower than the WTP of a risk-neutral one, for a large class of individual preferences’ representation and a large class of risks.

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Authors and Affiliations

  1. Université de Nancy, 2, 4, rue de la Ravinelle CO 26, 54035, Nancy cedex, France

    Eric Langlais

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  1. Eric Langlais
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Correspondence to Eric Langlais.

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Langlais, E. Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption. Theor Decis 59, 43–50 (2005). https://doi.org/10.1007/s11238-005-7303-9

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  • DOI: https://doi.org/10.1007/s11238-005-7303-9

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