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 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. The Geneva Papers on Risk and Insurance Theory (1992) 17, 147–158. doi:10.1007/BF00962711