Main Article Content
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.
Article Details
Bonanno G. (2019) Uncertainty Risk and Information. https://faculty.econ.ucdavis.edu/faculty/bonanno/PDF/URI_book.pdf
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Lahiri S. (2024) Weak Arbitrage Theorem Incorporating Loss Aversion. Preprints. https://doi.org/10.20944/preprints202411.0287.v1 (Crossref)
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- Somdeb Lahiri, Risk Aversion and a Calculus for Finitely Generated Piecewise Linear Functions: A Calculus that Economists Ought to Develop? , Metody Ilościowe w Badaniach Ekonomicznych: Tom 23 Nr 1 (2022)

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