Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324288 
Year of Publication: 
2022
Series/Report no.: 
Center for Mathematical Economics Working Papers No. 722
Publisher: 
Bielefeld University, Center for Mathematical Economics (IMW), Bielefeld
Abstract: 
The analysis of optimal risk sharing has been thus far largely restricted to non-expected utility models with concave utility functions, where concavity is an expression of ambiguity aversion and/or risk aversion. This paper extends the analysis to »-maxmin expected utility, Choquet expected utility, and Cumulative Prospect Theory, which accommodate ambiguity seeking and risk seeking attitudes. We introduce a novel methodology of quasidifferential calculus of Demyanov and Rubinov (1986, 1992) and argue that it is particularly well-suited for the analysis of these three classes of utility functions which are neither concave nor differentiable. We provide characterizations of quasidifferentials of these utility functions, derive first-order conditions for Pareto optimal allocations under uncertainty, and analyze implications of these conditions for risk sharing with and without aggregate risk.
Subjects: 
quasidifferential calculus
ambiguity
Pareto optimality
»-MaxMin expected utility
Choquet expected utility
rank-dependent expected utility
Cumulative Prospect Theory
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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