Stochastic Dominance and Absolute Risk Aversion
AbstractIn this paper we propose the infimum of the Arrow-Pratt index of absolute risk aversion as a measure of global risk aversion of a utility function. We then show that, for any given arbitrary pair of distributions, there exists a threshold level of global risk aversion such that all increasing concave utility functions with at least as much global risk aversion would rank the two distributions in the same way. Furthermore, this threshold level is sharp in the sense that, for any lower level of global risk aversion, we can find two utility functions in this class yielding opposite preference relations for the two distributions.
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 InfoPaper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 506.02.
Date of creation: 04 Apr 2002
Date of revision:
Risk aversion; Stochastic Dominance; Thriftiness;
Other versions of this item:
- Jordi Caballé & Joan Esteban, 2003. "Stochastic Dominance and Absolute Risk Aversion," Working Papers 9, Barcelona Graduate School of Economics.
- Jordi Caballé & Joan Esteban, 2003. "Stochastic Dominance and Absolute Risk Aversion," UFAE and IAE Working Papers 602.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Jordi Caballé & Joan Esteban, 2002. "Stochastic dominance and absolute risk aversion," Economics Working Papers 643, Department of Economics and Business, Universitat Pompeu Fabra.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D30 - Microeconomics - - Distribution - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-04-15 (All new papers)
- NEP-IAS-2002-04-15 (Insurance Economics)
- NEP-LTV-2002-04-03 (Unemployment, Inequality & Poverty)
- NEP-MIC-2002-04-15 (Microeconomics)
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.:
- Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
- 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.
- Miles S. Kimball, 1991.
"Standard Risk Aversion,"
NBER Technical Working Papers
0099, National Bureau of Economic Research, Inc.
- Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
- Gollier, Christian & Pratt, John W, 1996. "Risk Vulnerability and the Tempering Effect of Background Risk," Econometrica, Econometric Society, vol. 64(5), pages 1109-23, September.
- Meyer, Jack, 1977. "Second Degree Stochastic Dominance with Respect to a Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 477-87, June.
- Gollier, C. & Kimball, M.S., 1996. "New Methods in the Classical Economics of Uncertainty: Comparing Risks," Papers 96.412, Toulouse - GREMAQ.
- Alain Chateauneuf & Michéle Cohen & Isaac Meilijson, 2005.
"More pessimism than greediness: a characterization of monotone risk aversion in the rank-dependent expected utility model,"
Springer, vol. 25(3), pages 649-667, 04.
- Chateauneuf, A. & Cohen, M. & Meilijson, I., 1997. "More Pessimism than Greediness: A Characterization of Monotone Risk Aversion in the Rank-Dependant Expected Utility Model," Papiers d'Economie MathÃÂ©matique et Applications 97.53, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Lambert, Peter J. & Hey, John D., 1979. "Attitudes to risk," Economics Letters, Elsevier, vol. 2(3), pages 215-218.
- Caballé, Jordi & Pomansky, Alexey, 1995.
"Mixed Risk Aversion,"
Working Paper Series
444, Research Institute of Industrial Economics.
- Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January.
- Meyer, Jack, 1975. "Increasing risk," Journal of Economic Theory, Elsevier, vol. 11(1), pages 119-132, August.
- Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
- Eisenhauer, Joseph G., 2010. "Rank-ordering of risk preferences with conventional and discrete measures," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 291-297, August.
- Eisenhauer, Joseph G., 2006. "Risk aversion and prudence in the large," Research in Economics, Elsevier, vol. 60(4), pages 179-187, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Xavier Vila).
If references are entirely missing, you can add them using this form.