English, Article, Journal or magazine article edition: On the Economic Meaning of Machina's FrÚchet Differentiability Assumption Zvi Safra; Uzi Segal

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Bookmark: http://trove.nla.gov.au/version/73277
Physical Description
  • preprint
Language
  • English

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Title
  • On the Economic Meaning of Machina's FrÚchet Differentiability Assumption
Author
  • Zvi Safra
  • Uzi Segal
Physical Description
  • preprint
Notes
  • This note shows that Machina's (1982) assumption that preferences over lotteries are smooth has some economic implications. We show that FrÚchet differentiability implies that preferences represent second order risk aversion (as well as conditional second order risk aversion). This implies, among other things, that decision makers buy full insurance only at the absence of marginal loading. We also show that with constant absolute and relative risk aversion, expected value maximization, second order risk aversion, and FrÚchet differentiability are equivalent.
  • RePEc:boc:bocoec:511
Language
  • English
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