Generalized Optimized Certainty Equivalent with Applications in the Rank-dependent Utility Model

2020 ◽  
Author(s):  
Qinyu Wu ◽  
Tiantian Mao ◽  
Taizhong Hu
Keyword(s):  
Certainty Equivalent ◽  
Utility Model ◽  
Rank Dependent Utility

Adverse Selection and Insurance Contracting: A Rank-Dependent Utility Analysis

2003 ◽  
Vol 3 (1) ◽  
Author(s):  
Matthew Joseph Ryan ◽  
Rhema Vaithianathan
Keyword(s):  
Adverse Selection ◽  
Expected Utility ◽  
Insurance Markets ◽  
Market Segment ◽  
Utility Model ◽  
Information Need ◽  
Utility Analysis ◽  
Informational Asymmetry ◽  
Rank Dependent Utility ◽  
S Model

Stiglitz (1977) established three well-known features of monopoly insurance markets subject to adverse selection: (i) at least one market segment is served, despite the informational asymmetry; (ii) there is always some screening of risk classes; and (iii) efficiency is sacrificed to achieve screening. We modify Stiglitz’s model, replacing his expected utility assumption on consumer behavior with a version of Quiggin’s (1982) rank-dependent utility model that has received strong experimental support. We show that none of the conclusions (i)—(iii) is robust to this revision. In particular, asymmetric information need not lead to any loss in efficiency.

scholarly journals On Extendability of the Principle of Equivalent Utility

Symmetry ◽  
2019 ◽  
Vol 12 (1) ◽  
pp. 42
Author(s):  
Małgorzata Chudziak ◽  
Marek Żołdak
Keyword(s):  
Functional Equation ◽  
Utility Function ◽  
Real Number ◽  
Insurance Premium ◽  
Distortion Function ◽  
Utility Model ◽  
Continuous Solutions ◽  
The Family ◽  
Rank Dependent Utility

An insurance premium principle is a way of assigning to every risk a real number, interpreted as a premium for insuring risk. There are several methods of defining the principle. In this paper, we deal with the principle of equivalent utility under the rank-dependent utility model. The principle, generated by utility function and probability distortion function, is based on the assumption of the symmetry between the decisions of accepting and rejecting risk. It is known that the principle of equivalent utility can be uniquely extended from the family of ternary risks. However, the extension from the family of binary risks need not be unique. Therefore, the following problem arises: characterizing those principles that coincide on the family of all binary risks. We reduce the problem thus to the multiplicative Pexider functional equation on a region. Applying the form of continuous solutions of the equation, we solve the problem completely.

Epilogue

2018 ◽  
pp. 281-284
Author(s):  
Ivan Moscati
Keyword(s):  
Research Trend ◽  
Utility Model ◽  
Main Research ◽  
Utility Measurement ◽  
Research Programs ◽  
Rank Dependent Utility ◽  
Experienced Utility ◽  
History Of ◽  
Similarities And Differences ◽  
Future Work

The epilogue reviews the key passages in the history of economists’ ideas, discussions, and research on the measurability of utility between 1870 and 1985 and points to three main research programs related to utility measurement in the post-1985 period. Researchers in the first program, such as Peter Wakker and Mohammed Abdellaoui, aim at measuring utility experimentally on the basis of some nonexpected utility model, such as the rank-dependent utility model. A second research trend, championed by Daniel Kahneman, has been concerned with the measurement of utility-related concepts, such as “experienced utility,” “remembered utility,” or “happiness.” Finally, neuroeconomists such as Paul Glimcher have interpreted the measurement of the activity of a specific population of neurons in the human brain as the measurement of utility. The epilogue briefly discusses the similarities and differences between these three post-1985 research programs concerning utility measurement but leaves to future work a detailed analysis.

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