The monetary utility premium and interpersonal comparisons

Jingyuan LI, Liqun LIU

Research output: Journal PublicationsJournal Article (refereed)

6 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)257-260
Number of pages4
JournalEconomics Letters
Volume125
Issue number2
Early online date16 Sep 2014
DOIs
Publication statusPublished - Nov 2014

Keywords

  • Comparative risk aversion
  • Higher-degree risk aversion
  • Risk aversion
  • Utility premium

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