Our first main result says that whether one decision maker is more risk averse than another can be determined from their attitudes toward a given two-parameter family of risks. When all risks belong to this family, risk aversion can be compared even when initial wealth is random. Our second main result solves a long-standing problem in mean-variance analysis: what is the interpretation of the concavity of utility as a function of mean and variance? We show that in the case of normal distributions, this utility function is concave if and only if the agent has decreasing prudence.
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Article provided by Springer in its journal Economic Theory.
Volume (Year): 15 (2000) Issue (Month): 2 () Pages: 469-476 Download reference. The following formats are available: HTML,
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