Greater Mutual Aggravation
Sebastian Ebert, Diego C. Nocetti, Harris Schlesinger
Management Science · 2018 · Volume 64 · Issue 6
Abstract
A large strand of research has identified when (i) a single risk is undesirable and (ii) two independent risks aggravate each other. We extend this line of inquiry by establishing when (iii) mutual aggravation is greater for greater risks. This natural property of greater mutual aggravation explains recent experimental findings on higher-order risk preferences, and can guide managerial behavior when risks in the decision environment become more severe. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2746 . This paper was accepted by Han Bleichrodt, decision analysis.
Keywords
mixed risk aversion, mutual aggravation, risk apportionment, stochastic dominance, utility premium, prudence
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