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Decreasing Ross risk aversion: Higher-order generalizations and implications

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  • Wang, Jianli
  • Li, Jingyuan

Abstract

We define decreasing higher-degree Ross risk aversion and provide an intuitive interpretation for it. We show that all deteriorations of background risk in the sense of n-th risk increase raise risk aversion in the Arrow–Pratt sense if and only if decreasing (n+1)-th degree Ross risk aversion holds. Meanwhile, the utility functional form of the agent with decreasing (n+1)-th degree Ross risk aversion is specified. Our result also implies decreasing 3-rd degree Ross risk aversion can be used to characterize the sufficient condition of risk vulnerability. Moreover, our analysis shows the implication of decreasing n/m-th (n>m≥1) Ross risk aversion.

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  • Wang, Jianli & Li, Jingyuan, 2014. "Decreasing Ross risk aversion: Higher-order generalizations and implications," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 136-142.
    • Handle: RePEc:eee:mateco:v:55:y:2014:i:c:p:136-142
    DOI: 10.1016/j.jmateco.2014.02.002
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