Choosing Between Risky Prospects: The Characterization of Comparative Statics Results, and Location Independent Risk

Abstract

We consider expected utility maximizers choosing from a family of risky prospects and examine how choice is influenced by the decision makers attitude to risk. If the family of risky prospects can be ordered so that as decision makers are more risk tolerant they choose a gamble higher in the ordering, then it is natural to say that the family of risky prospects admit a comparative static result. The paper characterizes when comparative static results of this sort exist. An application is to propose a criterion of location independent riskiness.