Loss Aversion and State-Dependent Linear Utility Functions for Monetary Returns
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arXiv
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| Format: | Preprint |
| Published: |
2024
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| _version_ | 1866913579055185920 |
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| author | Lahiri, Somdeb |
| author_facet | Lahiri, Somdeb |
| contents | We present a theory of expected utility with state-dependent linear utility functions for monetary returns, that incorporates the possibility of loss-aversion. Our results relate to first order stochastic dominance, mean-preserving spread, increasing-concave linear utility profiles and risk aversion. As an application of the expected utility theory developed here, we analyze the contract that a monopolist would offer in an insurance market that allowed for partial coverage of loss. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2410_19030 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Loss Aversion and State-Dependent Linear Utility Functions for Monetary Returns Lahiri, Somdeb Theoretical Economics Computer Science and Game Theory Optimization and Control Portfolio Management 90B50 We present a theory of expected utility with state-dependent linear utility functions for monetary returns, that incorporates the possibility of loss-aversion. Our results relate to first order stochastic dominance, mean-preserving spread, increasing-concave linear utility profiles and risk aversion. As an application of the expected utility theory developed here, we analyze the contract that a monopolist would offer in an insurance market that allowed for partial coverage of loss. |
| title | Loss Aversion and State-Dependent Linear Utility Functions for Monetary Returns |
| topic | Theoretical Economics Computer Science and Game Theory Optimization and Control Portfolio Management 90B50 |
| url | https://arxiv.org/abs/2410.19030 |