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ON THE CONCAVITY AND QUASICONCAVITY PROPERTIES OF ( σ , μ ) UTILITY FUNCTIONS
Author(s) -
LajeriChaherli Fatma
Publication year - 2016
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/boer.12039
Subject(s) - quasiconvex function , prudence , economics , risk aversion (psychology) , concave function , function (biology) , expected utility hypothesis , vulnerability (computing) , set (abstract data type) , microeconomics , mathematical economics , regular polygon , econometrics , mathematics , convex analysis , computer science , convex optimization , philosophy , geometry , theology , computer security , evolutionary biology , programming language , biology
Concavity and quasiconcavity have always been important properties in financial economics particularly in decision problems when an objective function has to be maximized over a convex set. Both properties have mainly been used as purely technical assumptions. In this paper, we link concavity and quasiconcavity of a ( σ , μ ) utility function to the basic concepts of risk aversion, prudence, risk vulnerability and temperance. We show that concavity means the agent is more risk vulnerable than prudent. In particular, we can see when a function is both concave and quasiconcave and when it is only quasiconcave.