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Local Utility and Multivariate Risk Aversion

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Document pages: 18 pages

Abstract: We revisit Machina s local utility as a tool to analyze attitudes tomultivariate risks. We show that for non-expected utility maximizers choosingbetween multivariate prospects, aversion to multivariate mean preservingincreases in risk is equivalent to the concavity of the local utilityfunctions, thereby generalizing Machina s result in Machina (1982). To analyzecomparative risk attitudes within the multivariate extension of rank dependentexpected utility of Galichon and Henry (2011), we extend Quiggin s monotonemean and utility preserving increases in risk and show that the usefulcharacterization given in Landsberger and Meilijson (1994) still holds in themultivariate case.

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