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Many of the most significant risks that people face in their lives are left-skewed, i.e., imply large losses with only small probability. I characterize skewness in binary risks, which are widely applied in both economic models and experiments. Moreover, I provide an explicit re-parametrization...
Persistent link: https://www.econbiz.de/10011263926
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Prudence is widely known for inducing precautionary saving behavior. This paper revisits this important implication by introducing the notions of first-order and second-order prudence. Within smooth expected utility (EU), prudence is second-order. In that case, the presence of a small,...
Persistent link: https://www.econbiz.de/10014231587