Stochastic dominance and absolute risk aversion
AbstractIn this paper we proose 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.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 643.
Date of creation: Jul 2002
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Risk aversion; stochastic dominance;
Other versions of this item:
- Jordi Caballe & Joan Ma. Esteban, 2002. "Stochastic Dominance and Absolute Risk Aversion," UFAE and IAE Working Papers 506.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- 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).
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D30 - Microeconomics - - Distribution - - - General
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