Abstract
This paper examines marginal-risk behavior in a decision-theoretic setting that is sufficiently general to accommodate any decision-making model representable by a certainty equivalent. The analysis shows that risk aversion in its usual sense is a special case of marginal-risk aversion associated with mean-preserving changes in gambles. Thus, marginal-risk behavior and risk behavior are not inherently different. Rather, they manifest similar behavior evaluated at different gambles. The paradox of marginal-risk-loving risk averters arises from mixing definitions of an "increase in risk." © The Author 2015. Published by Oxford University Press on behalf of the Agricultural and Applied Economics Association. All rights reserved.
Original language | English |
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Pages (from-to) | 406-421 |
Number of pages | 16 |
Journal | American Journal of Agricultural Economics |
Volume | 98 |
Issue number | 2 |
DOIs | |
Publication status | Published - 1 Mar 2016 |