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Generalised Means of Simple Utility Functions with Risk Aversion

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Author Info
Denis Conniffe () (Economics, National University of Ireland, Maynooth)
Abstract

The paper examines the properties of a generalised mean of simple utilities each displaying risk aversion, that is, with first derivative positive and second derivative negative. It proves the mean is itself a valid utility function with the appropriate signs for derivatives and investigates risk aversion properties. It shows that simple component utilities, each of which may have quite restricted risk aversion properties, can be parsimoniously combined through the generalised mean formula to give a much more versatile utility function.

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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1790907.pdf.

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Length: 12 pages
Date of creation: 2007
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Handle: RePEc:may:mayecw:n1790907.pdf

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Postal: Maynooth, Co. Kildare
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  1. Conniffe, D., 2002. "Sums and Products of Indirect Utility Functions," Economics, Finance and Accounting Department Working Paper Series n1150402, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
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  2. Caballe, J. & Pomansky, A., 1995. "Mixed Risk Aversion," Research Institute of Industrial Economics Working Papers 444, Research Institute of Industrial Economics (IFN).
  3. Denis Conniffe, 2007. "A Note on Generating Globally Regular Indirect Utility Functions," The B.E. Journal of Theoretical Economics, Berkeley Electronic Press, vol. 7(1). [Downloadable!]
  4. Danyang Xie, 2002. "Power Risk Aversion Utility Functions," International Finance 0207006, EconWPA. [Downloadable!]
  5. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January. [Downloadable!] (restricted)
  6. Caballe, Jordi & Pomansky, Alexey, 1996. "Mixed Risk Aversion," Journal of Economic Theory, Elsevier, vol. 71(2), pages 485-513, November. [Downloadable!] (restricted)
  7. Meyer, Donald J. & Meyer, Jack, 2005. "Risk preferences in multi-period consumption models, the equity premium puzzle, and habit formation utility," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1497-1515, November. [Downloadable!] (restricted)
  8. Gerry Boyle & Denis Conniffe, 2006. "Compatibility of Expected Utility and ยต/s Approaches to Risk for a Class of Non Location-Scale Distributions," Economics, Finance and Accounting Department Working Paper Series n1670406, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
  9. Nakamura, Yutaka, 1996. "Sumex utility functions," Mathematical Social Sciences, Elsevier, vol. 31(1), pages 39-47, February. [Downloadable!] (restricted)
  10. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May. [Downloadable!] (restricted)
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  11. Maurice J. Roche, 2006. "The equity premium puzzle and decreasing relative risk aversion," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(3), pages 179-182, May. [Downloadable!] (restricted)
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  12. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June. [Downloadable!] (restricted)
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