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Meaning Of ‘More Risk Averse’ When Preferences Are Over Mean And Variance

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  • TIMOTHY MATHEWS

Abstract

Building upon the intuition of Ross, a definition of more risk averse is proposed for situations in which preferences are over mean and variance. If agents can be compared by this definition, the more risk averse agent will choose a less risky alternative. If this definition cannot be applied, it is not clear which agent will choose a riskier alternative. The definition applies whenever agents are ordered according to Ross's notion of more risk averse. The definition may or may not be consistent with the Arrow–Pratt notion of more risk averse (and therefore may apply when Ross's notion does not).

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  • Timothy Mathews, 2005. "Meaning Of ‘More Risk Averse’ When Preferences Are Over Mean And Variance," Manchester School, University of Manchester, vol. 73(1), pages 75-91, January.
    • Handle: RePEc:bla:manchs:v:73:y:2005:i:1:p:75-91
    DOI: 10.1111/j.1467-9957.2005.00425.x
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    References listed on IDEAS

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    1. Timothy Mathews, 2004. "Portfolio Selection with Quadratic Utility Revisited," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 29(2), pages 137-144, December.
    2. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    3. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
    4. Hadar, Josef & Seo, Tae Kun, 1990. "Ross' Measure of Risk Aversion and Portfolio Selection," Journal of Risk and Uncertainty, Springer, vol. 3(1), pages 93-99, March.
    5. Yaari, Menahem E., 1969. "Some remarks on measures of risk aversion and on their uses," Journal of Economic Theory, Elsevier, vol. 1(3), pages 315-329, October.
    6. Timothy Mathews, 2003. "A Risk Averse Seller in a Continuous Time Auction with a Buyout Option," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 5(2), January.
    7. Timothy Mathews, 2004. "The Impact of Discounting on an Auction with a Buyout Option: a Theoretical Analysis Motivated by eBay’s Buy-It-Now Feature," Journal of Economics, Springer, vol. 81(1), pages 25-52, January.
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    Cited by:

    1. Timothy Mathews, 2003. "A Risk Averse Seller in a Continuous Time Auction with a Buyout Option," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 5(2), January.

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