Changes in Risky Benefits and in Risky Costs: A Question of the Right Order

We organize and extendfindings on the comparative static effects of riskchanges on optimal behavior in a unifying expected utility model. We determine restric-tions on preferences for clear-cut results. Risk increases of a benefit are compensated bylowering exposure to risk. For risk increases of a cost, the response depends on the order ofthe risk change. This discrepancy arises because even-order risk increases of a cost raise theriskiness of the payoff distribution, whereas odd-order risk increases of a cost reduce it.We identify the stochastic dominance orders to resolve this discrepancy and discuss specif-ic decision problems as applications.