Abstract
This paper offers interpretations and applications of the “fear of ruin” coefficient (Aumann and Kurz, 1977, Econometrica). This coefficient is useful for analyzing the behavior of expected utility maximizers when they face binary lotteries with the same worse outcome. Comparative statics results of “more fear of ruin” are derived. The partial ordering induced by the fear of ruin coefficient is shown to be weaker than that induced by the Arrow-Pratt coefficient.
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JEL Classification: D81
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Foncel, J., Treich, N. Fear of Ruin. J Risk Uncertainty 31, 289–300 (2005). https://doi.org/10.1007/s11166-005-5104-8
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DOI: https://doi.org/10.1007/s11166-005-5104-8