An Economic Index of Riskiness
AbstractDefine the riskiness of a gamble as the reciprocal of the absolute risk aversion (ARA) of an individual with constant ARA who is indifferent between taking and not taking that gamble. We characterize this index by axioms, chief among them a "duality" axiom that, roughly speaking, asserts that less risk-averse individuals accept riskier gambles. The index is positively homogeneous, continuous, and subadditive; respects first- and second-order stochastic dominance; and for normally distributed gambles is half of variance/mean. Examples are calculated, additional properties are derived, and the index is compared with others. (c) 2008 by The University of Chicago. All rights reserved..
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 116 (2008)
Issue (Month): 5 (October)
Contact details of provider:
Web page: http://www.journals.uchicago.edu/JPE/
Other versions of this item:
- Roberto Serrano & Robert J. Aumann, 2007. "An Economic Index Of Riskiness," Working Papers wp2007_0706, CEMFI.
- Robert J. Aumann & Roberto Serrano, 2007. "An Economic Index of Riskiness," Discussion Paper Series dp446, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Robert J. Aumann & Roberto Serrano, 2006. "An Economic Index of Riskiness," Levine's Bibliography 321307000000000585, UCLA Department of Economics.
- Robert J. Aumann & Roberto Serrano, 2007. "An economic index of riskiness," Working Papers 2007-08, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
- Robert J. Aumann & Roberto Serrano, 2006. "An Economic Index of Riskiness," Working Papers 2006-20, Brown University, Department of Economics.
- Robert J. Aumann & Roberto Serrano, 2007. "An Economic Index of Riskiness," Levine's Bibliography 321307000000000836, UCLA Department of Economics.
- C00 - Mathematical and Quantitative Methods - - General - - - General
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- D00 - Microeconomics - - General - - - General
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- 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.:
- Matthew Rabin, 2001.
"Risk Aversion and Expected Utility Theory: A Calibration Theorem,"
Levine's Working Paper Archive
7667, David K. Levine.
- Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
- Matthew Rabin., 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Economics Working Papers E00-279, University of California at Berkeley.
- Matthew Rabin, 2001. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Method and Hist of Econ Thought 0012001, EconWPA.
- Rabin, Matthew, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Department of Economics, Working Paper Series qt731230f8, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Hanoch, G & Levy, Haim, 1969. "The Efficiency Analysis of Choices Involving Risk," Review of Economic Studies, Wiley Blackwell, vol. 36(107), pages 335-46, July.
- Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
- Palacios-Huerta, Ignacio & Serrano, Roberto, 2006.
"Rejecting small gambles under expected utility,"
Elsevier, vol. 91(2), pages 250-259, May.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
- Tobin, James, 1969. "Comment on Borch and Feldstein," Review of Economic Studies, Wiley Blackwell, vol. 36(105), pages 13-14, January.
- Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-61, July.
- Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July.
- Peter C. Fishburn, 1984. "Foundations of Risk Measurement. I. Risk As Probable Loss," Management Science, INFORMS, vol. 30(4), pages 396-406, April.
- Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-26, March.
- Levy, Haim & Hanoch, Giora, 1970. "Relative Effectiveness of Efficiency Criteria for Portfolio Selection," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 5(01), pages 63-76, March.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).
If references are entirely missing, you can add them using this form.