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Burr Utility

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Author Info

  • Ikefuji, M.
  • Laeven, R.J.A.
  • Magnus, J.R.
  • Muris, C.H.M.

    (Tilburg University, Center for Economic Research)

Abstract

This note proposes the Burr utility function. Burr utility is a flexible two-parameter family that behaves approximately power-like (CRRA) remote from the origin, while exhibiting exponential-like (CARA) features near the origin. It thus avoids the extreme behavior of the power family near the origin. We show how to characterize Burr utility as a special case in the general class of utility functions with non-increasing and convex absolute risk aversion, and non-decreasing and concave relative risk aversion. We further show its connection to the Burr probability distribution. A related class of generalized exponential utility functions is also studied.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2010-81.

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Date of creation: 2010
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Handle: RePEc:dgr:kubcen:201081

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Web page: http://center.uvt.nl

Related research

Keywords: Cardinal scale; Utility function; Harmonic absolute risk aversion (HARA); Exponential utility; Power utility;

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Blog mentions

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  1. C{A|R}RA utility
    by Economic Logician in Economic Logic on 2010-09-13 14:32:00

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