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Handbook of the Economics of Risk and Uncertainty
book

Handbook of the Economics of Risk and Uncertainty

by Mark Machina, W. Kip Viscusi
November 2013
Beginner content levelBeginner
896 pages
35h 10m
English
North Holland
Content preview from Handbook of the Economics of Risk and Uncertainty
The Theory of Risk and Risk Aversion
107
reversed. For the linear or risk neutral utility function,
Eu
(
˜z
)
= u
(µ
)
for all random
variables. Since u(z) is unique to a positive linear transformation, the most often used
utility function to represent risk neutrality is the identity function u(z) = z. Risk neutral
decision makers choose among random variables on the basis of
E
z
]=
µ
, their mean
values. Thus, the M-V and EU decision models are the same in this regard. Also like the
M-V model, the EU decision model allows for decision makers who are neither risk
averse, nor risk loving, nor risk neutral; that is the utility function u(z) can be neither ...
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Publisher Resources

ISBN: 9780444536853