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    Increasing Outer Risk

    Menezes, Carmen F.
    Wang, X. H. (X. Henry), 1962-
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    [PDF] IncreasingOuterRisk.pdf (56.28Kb)
    Date
    2004
    Format
    Working Paper
    Metadata
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    Abstract
    Recent empirical research has established that the distributions of a wide range of economic variables are kurtotic in that they have higher peak(s) in the neighborhood of the mean and greater elongation in the tails than the normal distribution. This paper provides a formal characterization of the empirically significant notions of kurtotic distributions by formulating the concept of outer risk. An increase in outer risk corresponds to a dispersion transfer from the center of a distribution to its tails. In terms of the relocation of probability mass, such a dispersion transfer accentuates the peak(s) of the distribution and elongates its tails. It is shown that ordering distributions by outer risk is equivalent to the ordering of distributions resulting from unanimous choice by all individuals whose utility function has a negative fourth derivative.
    URI
    http://hdl.handle.net/10355/2650
    Part of
    Working papers (Department of Economics);WP 04-13
    Part of
    Economics publications
    Citation
    Department of Economics, 2004
    Rights
    OpenAccess.
    This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 License.
    Collections
    • Economics publications (MU)

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