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Greater Arrow–Pratt (Absolute) risk aversion of higher orders

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  • Liu, Liqun
  • Wong, Kit Pong

Abstract

Higher-order risk attitudes are related to higher-order moments of risk, and are unequivocally characterized by the signs and levels of higher-order derivatives of utility functions. In contrast to the direction of higher-degree risk aversion, the intensity of higher-degree risk aversion beyond the Arrow–Pratt measure of absolute risk aversion is far from conclusive. The purpose of this paper is to develop a unified framework of greater (m,n)th-degree mixed risk aversion in the Arrow–Pratt tradition, which includes many competing notions of greater higher-degree (absolute) risk aversion proposed in the extant literature as special cases. Properties of greater (m,n)th-degree mixed risk aversion are studied, a choice-based characterization is established, and several applications are presented.

Suggested Citation

  • Liu, Liqun & Wong, Kit Pong, 2019. "Greater Arrow–Pratt (Absolute) risk aversion of higher orders," Journal of Mathematical Economics, Elsevier, vol. 82(C), pages 112-124.
    • Handle: RePEc:eee:mateco:v:82:y:2019:i:c:p:112-124
    DOI: 10.1016/j.jmateco.2019.01.008
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    Cited by:

    1. Liqun Liu & Nicolas Treich, 2021. "Optimality of winner-take-all contests: the role of attitudes toward risk," Journal of Risk and Uncertainty, Springer, vol. 63(1), pages 1-25, August.

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