Fear of Loss and Happiness of Win: Properties and Applications

This article proposes two coefficients, “fear of loss” ( FL ) and “happiness of win” ( HW ), to capture the variation of risk attitude with respect to wealth. Several properties of interpersonal comparisons of  FL  and  HW  are achieved. We present three applications in the default risk bargaining problem (Tibiletti, 2006) to demonstrate that these properties can deliver more shortcut bargaining conditions and unambiguous comparative static results in situations involving interpersonal risk exchanges. We show that  FL  and  HW  coefficients are instrumental in explaining the comparative diffidence between an insurer and an insured.