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Risk aversion under preference uncertainty

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  • Kräussl, Roman
  • Lucas, André
  • Siegmann, Arjen

Abstract

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this result for asset allocation: poor agents that are uncertain about their risk aversion parameter invest less in risky assets than wealthy investors with identical risk aversion uncertainty. --

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Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2010/24.

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Date of creation: 2010
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Handle: RePEc:zbw:cfswop:201024

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Keywords: Risk Aversion; Preference Uncertainty; Risk-taking; Asset Allocation;

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