Risk and Monotone Comparative Statics without Independence

TL;DR

This paper extends comparative statics results to non-expected utility models by establishing new local utility conditions, enabling analysis of risk preferences and portfolio choices beyond traditional expected utility frameworks.

Contribution

It introduces novel local utility conditions that generalize existing results, allowing for monotone comparative statics in broader non-expected utility models.

Findings

Generalized conditions for monotone comparative statics

Applied results to portfolio choice and savings behavior

Extended analysis to non-expected utility preferences

Abstract

We extend well-known comparative results under expected utility to models of non-expected utility by providing novel conditions on local utility functions. We illustrate how our results parallel, and are distinct from, existing results for monotone comparative statics under expected utility, as well as risk preferences for non-expected utility. Our conditions generalize existing results for specific preferences (including expected utility) and allow us to verify monotone comparative statics for novel environments and preferences. We apply our results to portfolio choice problems where preferences or wealth might change, as well as precautionary savings.