TY - JOUR
T1 - The monetary utility premium and interpersonal comparisons
AU - LI, Jingyuan
AU - LIU, Liqun
PY - 2014/11
Y1 - 2014/11
N2 - The utility premium is generally defined as the pain or reduction in expected utility caused by an nth-degree risk increase, where n≥2. While it is a very useful concept in understanding a decision maker’s choice in uncertain situations, the utility premium is not interpersonally comparable. This note shows that the monetary utility premium–the utility premium divided by the expected marginal utility at the random starting wealth–is interpersonally comparable, and the comparison is characterized by Ross more risk aversion of the corresponding degree.
AB - The utility premium is generally defined as the pain or reduction in expected utility caused by an nth-degree risk increase, where n≥2. While it is a very useful concept in understanding a decision maker’s choice in uncertain situations, the utility premium is not interpersonally comparable. This note shows that the monetary utility premium–the utility premium divided by the expected marginal utility at the random starting wealth–is interpersonally comparable, and the comparison is characterized by Ross more risk aversion of the corresponding degree.
KW - Comparative risk aversion
KW - Higher-degree risk aversion
KW - Risk aversion
KW - Utility premium
UR - http://commons.ln.edu.hk/sw_master/2722
UR - https://www.scopus.com/inward/record.uri?eid=2-s2.0-84908219337&doi=10.1016%2fj.econlet.2014.09.006&partnerID=40&md5=65cfca8a700e2b1af13bc8d4f2bec649
U2 - 10.1016/j.econlet.2014.09.006
DO - 10.1016/j.econlet.2014.09.006
M3 - Journal Article (refereed)
SN - 0165-1765
VL - 125
SP - 257
EP - 260
JO - Economics Letters
JF - Economics Letters
IS - 2
ER -