On comparison of the principles of equivalent utility and its applications

M. Chudziak

Abstract


An insurance premium principle is a way of assigning to every risk,represented by a non-negative bounded random variable on a givenprobability space, a non-negative real number. Such a number isinterpreted as a premium for the insuring risk. In this paper theimplicitly defined principle of equivalent utility is investigated.Using the properties of the quasideviation means, we characterize acomparison in the class of principles of equivalent utility underRank-Dependent Utility, one of the important behavioral models ofdecision making under risk. Then we apply this result to establishcharacterizations of equality and positive homogeneity of theprinciple. Some further applications are discussed as well.

Keywords


insurance premium, quasideviation mean, comparison, equality, positive homogeneity, risk loading

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