Dual Moments and Risk Attitudes

TL;DR

This paper explores the use of dual moments in decision-making under risk, showing they are essential alongside primal moments for accurately assessing absolute risk aversion in non-EU models.

Contribution

It introduces the importance of dual moments in risk analysis, extending the traditional focus on primal moments in decision models.

Findings

Dual moments are necessary for equivalent risk aversion indices in non-EU models.

Dual moments complement primal moments in risk assessment.

The paper clarifies the role of dual moments in decision theory.

Abstract

In decision under risk, the primal moments of mean and variance play a central role to define the local index of absolute risk aversion. In this paper, we show that in canonical non-EU models dual moments have to be used instead of, or on par with, their primal counterparts to obtain an equivalent index of absolute risk aversion.