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..
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 116 (2008)
Issue (Month): 5 (October)
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Other versions of this item:
- 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, 2007. "An economic index of riskiness," Working Papers 2007-08, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
- 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," Levine's Bibliography 321307000000000836, UCLA Department of Economics.
- Robert J. Aumann & Roberto Serrano, 2006. "An Economic Index of Riskiness," Levine's Bibliography 321307000000000585, UCLA Department of Economics.
- Robert J. Aumann & Roberto Serrano, 2006. "An Economic Index of Riskiness," Working Papers 2006-20, Brown University, 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
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