Risk Aversion Behavior. Relationships Between Risk Aversion, Prudence And Cautiousness
AbstractThis paper defines decreasing absolute risk aversion in purely behavioral termswithout any assumption of differentiability and shows that a strictly increasing and riskaverse utility function with decreasing absolute risk aversion is necessarily differentiable withan absolutely continuous derivative. A risk averse utility function has decreasing absolute riskaversion if and only if it has a decreasing absolute risk aversion density, and if and only if thecumulative absolute risk aversion function is increasing and concave. This leads to acharacterization of all such utility functions. Analogues of these results also hold forincreasing absolute and for increasing and decreasing relative risk aversion.
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Bibliographic InfoArticle provided by Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia in its journal Annales Universitatis Apulensis Series Oeconomica.
Volume (Year): 1 (2008)
Issue (Month): 10 ()
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risk aversion; prudence; cautiousness;
Find related papers by JEL classification:
- G - Financial Economics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- R. G. Vickson, 1975. "Stochastic Dominance Tests for Decreasing Absolute Risk Aversion. I. Discrete Random Variables," Management Science, INFORMS, vol. 21(12), pages 1438-1446, August.
- Dybvig, Philip H & Lippman, Steven A, 1983. "An Alternative Characterization of Decreasing Absolute Risk Aversion," Econometrica, Econometric Society, vol. 51(1), pages 223-24, January.
- Vickson, R. G., 1975. "Stochastic Dominance for Decreasing Absolute Risk Aversion," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(05), pages 799-811, December.
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