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 which, roughly speaking, asserts that less risk-averse individuals accept riskier gambles. The index is homogeneous of degree 1, monotonic with respect to first and second order stochastic dominance, and for gambles with normal distributions, is half of variance/mean. Examples are calculated, additional properties derived, and the index is compared with others in the literature.
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Bibliographic InfoPaper provided by UCLA Department of Economics in its series Levine's Bibliography with number 321307000000000836.
Date of creation: 07 Mar 2007
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Other versions of this item:
- 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," Discussion Paper Series dp446, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Roberto Serrano & Robert J. Aumann, 2007. "An Economic Index Of Riskiness," Working Papers wp2007_0706, CEMFI.
- Robert J. Aumann & Roberto Serrano, 2006. "An Economic Index of Riskiness," Levine's Bibliography 321307000000000585, 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
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