Left-side Relatively Strong Increases in Risk and Their Comparative Statics

Soojong Kim ; Iltae Kim ; Suyeol Ryu

Deputy Director, The Board of Audit and Inspection, Seoul, Korea, Tel: +82-2-2011-3213, Fax: +82-2-2011-2869 sjkmsu@yahoo.co.kr
Professor and Corresponding author, Department of Economics, Chonnam National University, Gwangju 500-757, Korea, Tel: +82-62-530-1550, Fax: +82-62-530-1429 kit2603@chonnam.ac.kr
Research Fellow, Busan Development Institute, Busan, Republic of Korea, Tel: +82-51-640-2025, Fax: +82-51-640-2009 ryusuyeo@bdi.re.kr

JEL Classification: D81

Abstract

This paper proposes a new concept, a left-side relatively strong increase in risk(L-RSIR) order that extends the definition of a relatively strong increase in risk(RSIR) order. We show that for the class of linear payoffs, one can obtain an appealing comparative statics result for L-RSIR shifts by imposing additional restrictions on the risk preferences of a risk-averse decision maker.

Keywords:

Left-side relatively strong increases in risk, Prudence, Relatively strong increases in risk

Acknowledgments

This is a revision of a paper presented at the Korean Economic Association 11th international conference. The authors wish to thank anonymous referees for helpful comments.

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