Changes in Risky Benefits and in Risky Costs: A Question of the Right Order
Abstract
We organize and extend findings on the comparative static effects of risk changes on optimal behavior in a unifying expected utility model. We determine restrictions on preferences for clear-cut results. Risk increases of a benefit are compensated by lowering exposure to risk. For risk increases of a cost, the response depends on the order of the risk change. This discrepancy arises because even-order risk increases of a cost raise the riskiness...
Paper Details
Title
Changes in Risky Benefits and in Risky Costs: A Question of the Right Order
Published Date
May 1, 2022
Journal
Volume
68
Issue
5
Pages
3625 - 3634
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