Self-Protection in the Expected-Utility-of-Wealth Model: An Impossibility Theorem

We investigate the possibility of ordering expected utility-of-wealth maximizers according to their propensities to purchase self-protection. We define one agent as "more cautious" than another (toward a loss of specific size given a specific initial wealth) if the first agent would spend...

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Bibliographic Details
Published inThe Geneva Papers on Risk and Insurance Theory Vol. 17; no. 2; pp. 147 - 157
Main Authors SWEENEY, GEORGE, BEARD, T. RANDOLPH
Format Journal Article
LanguageEnglish
Published Boston Kluwer Academic Publishers 01.12.1992
Palgrave Macmillan
SeriesThe Geneva Risk and Insurance Review
Subjects
Economic models
Economic theory
Expected utility
Insurance markets
Probability distributions
Risk
Risk aversion
Risk aversion preference
Self insurance
Spending
Wealth
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Summary:We investigate the possibility of ordering expected utility-of-wealth maximizers according to their propensities to purchase self-protection. We define one agent as "more cautious" than another (toward a loss of specific size given a specific initial wealth) if the first agent would spend more on self-protection than the other, so long as the technological relationship between spending and loss probability belongs to a broad class of functions. We show that the expected-utility-of-wealth model does not allow for the possibility that one agent could be "more cautious" than another.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
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ISSN:0926-4957
1554-964X
1573-6954
1554-9658
DOI:10.1007/BF00962711