Generalized Expected Utility Analysis of Risk Aversion with State-Dependent Preference.

In this paper the author develops measures of absolute risk aversion for preference relations on risky prospects that are state-dependent and are representable by Frechet differentiable, nonlinear, functionals. A comparative statics analysis of optimal air travel insurance coverage illustrates the usefulness of the proposed measures. It is also demonstrated that the analytical framework described above is consistent with the purchase of air travel insurance even in circumstances where expected utility theory is not. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.