Characterizing optimism and pessimism directly through comonotonicity
Pessimism-independence is introduced to characterize pessimistic risk attitudes for the nonlinear-probability models of Schmeidler, Quiggin, and Yaari directly in terms of comonotonicity, rather than through additional conditions such as convexity of preferences. Pessimism-independence requires the mixture of an arbitrary good and a fixed act to be preferred to the mixture of a comonotonic bad act and the fixed act. Thus, more general than full-force independence, it does not exclude the additional (pessimistic) appreciation of the hedging involved in the mixture of a noncomonotonic bad and fixed act. More restrictive than comonotonic independence, it does exclude (optimistic) aversion of hedging.
|Keywords||comonotonicity, risk aversion|
|Persistent URL||dx.doi.org/10.1016/0022-0531(90)90043-J, hdl.handle.net/1765/23220|
Wakker, P.P.. (1990). Characterizing optimism and pessimism directly through comonotonicity. Journal of Economic Theory, 52(3), 453–463. doi:10.1016/0022-0531(90)90043-J