Theory and Decision 74 (1):127-149 (2013)

This article analyzes the conditions under which any change in a multiplicative background risk induces a more cautious behavior. We give necessary and sufficient conditions under which any change in the multiplicative background risk with respect to the Nth-degree stochastic dominance raises local risk aversion. Surprisingly, decreasing relative risk aversion of any order up to N in the sense of Pratt coupled with decreasing relative risk aversion in the sense of Ross are sufficient to guarantee an increase in local risk aversion after any deterioration of the multiplicative background risk thanks to the Nth-degree stochastic dominance. We link our results concerning second-order stochastic dominance with the concept of multiplicative risk vulnerability.
Keywords Background risk  Comparative risk  Increase in risk  Risk aversion  Risk vulnerability  Stochastic dominance
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DOI 10.1007/s11238-012-9336-1
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Appendix.[author unknown] - 1994 - Deutsche Vierteljahrsschrift für Literaturwissenschaft Und Geistesgeschichte 68 (1):289-289.

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