Abstract
So far, we have assumed a world under certainty. In the real world, however, choices are often made under uncertainty.
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Notes
- 1.
It is from Sargent (1987b, 154–155).
- 2.
In reality, a person can be risk averse under one circumstance and risk loving in another. For example, when a person buys insurance, he is risk averse; and when he buys a lottery, he is risk loving. The key in these two cases is that, when the person buys insurance, he pays to move from a risky situation to a non-risky situation; and when he buys a lottery, he pays to move from a non-risky situation to a risky situation. Our definition of risk attitudes in (5) does not include such a person. In (5), a person is either always risk averse, or risk neutral, or risk loving.
- 3.
In the proofs of this section, we assume sufficient differentiability for \( u; \) this is for convenience. Also, we use \( - \infty \) and \( \infty \) in places where \( \underline{x} \) and \( \bar{x} \) should be used for mathematical rigor.
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Wang, S. (2018). Risk Theory. In: Microeconomic Theory. Springer Texts in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-13-0041-7_3
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DOI: https://doi.org/10.1007/978-981-13-0041-7_3
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