IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Explaining the characteristics of the power (CRRA) utility family

Author Info

Listed author(s):
  • Peter P. Wakker

    (Econometric Institute, Erasmus University Rotterdam, Rotterdam, The Netherlands)

Abstract

The power family, also known as the family of constant relative risk aversion (CRRA), is the most widely used parametric family for fitting utility functions to data. Its characteristics have, however, been little understood, and have led to numerous misunderstandings. This paper explains these characteristics in a manner accessible to a wide audience. Copyright © 2008 John Wiley & Sons, Ltd.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1002/hec.1331
File Function: Link to full text; subscription required
Download Restriction: no

Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 17 (2008)
Issue (Month): 12 ()
Pages: 1329-1344

as
in new window

Handle: RePEc:wly:hlthec:v:17:y:2008:i:12:p:1329-1344
DOI: 10.1002/hec.1331
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

Keywords:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, vol. 97(3), pages 745-788, June.
  2. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  3. Palacios-Huerta, Ignacio & Serrano, Roberto, 2006. "Rejecting small gambles under expected utility," Economics Letters, Elsevier, vol. 91(2), pages 250-259, May.
  4. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
  5. Angela Robinson & Anne Spencer, 2006. "Exploring challenges to TTO utilities: valuing states worse than dead," Health Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 393-402.
  6. Robin Cubitt & Chris Starmer & Robert Sugden, 2001. "Discovered preferences and the experimental evidence of violations of expected utility theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 8(3), pages 385-414.
  7. Kandel, Shmuel & Stambaugh, Robert F., 1991. "Asset returns and intertemporal preferences," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 39-71, February.
  8. Glenn W Harrison & John A List & Charles Towe, 2007. "Naturally Occurring Preferences and Exogenous Laboratory Experiments: A Case Study of Risk Aversion," Econometrica, Econometric Society, vol. 75(2), pages 433-458, 03.
  9. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  10. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
  11. Camerer, Colin F & Ho, Teck-Hua, 1994. "Violations of the Betweenness Axiom and Nonlinearity in Probability," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 167-196, March.
  12. Louis Kaplow, 2005. "The Value of a Statistical Life and the Coefficient of Relative Risk Aversion," Journal of Risk and Uncertainty, Springer, vol. 31(1), pages 23-34, July.
  13. Doctor, Jason N. & Bleichrodt, Han & Miyamoto, John & Temkin, Nancy R. & Dikmen, Sureyya, 2004. "A new and more robust test of QALYs," Journal of Health Economics, Elsevier, vol. 23(2), pages 353-367, March.
  14. John Brazier & Paul Dolan & Korina Karampela & Isabel Towers, 2006. "Does the whole equal the sum of the parts? Patient-assigned utility scores for IBS-related health states and profiles," Health Economics, John Wiley & Sons, Ltd., vol. 15(6), pages 543-551.
  15. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
  16. Fredrik Carlsson & Dinky Daruvala & Olof Johansson-Stenman, 2005. "Are People Inequality-Averse, or Just Risk-Averse?," Economica, London School of Economics and Political Science, vol. 72(3), pages 375-396, 08.
  17. Robert B. Barsky & F. Thomas Juster & Miles S. Kimball & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 537-579.
  18. Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-1369, December.
  19. Bleichrodt, Han & Herrero, Carmen & Pinto, Jose Luis, 2002. "A proposal to solve the comparability problem in cost-utility analysis," Journal of Health Economics, Elsevier, vol. 21(3), pages 397-403, May.
  20. Donald Meyer & Jack Meyer, 2005. "Relative Risk Aversion: What Do We Know?," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 243-262, December.
  21. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
  22. Vendrik, Maarten C.M. & Woltjer, Geert B., 2007. "Happiness and loss aversion: Is utility concave or convex in relative income?," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1423-1448, August.
  23. Robert R. Bliss & Nikolaos Panigirtzoglou, 2004. "Option-Implied Risk Aversion Estimates," Journal of Finance, American Finance Association, vol. 59(1), pages 407-446, 02.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as
in new window


Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:wly:hlthec:v:17:y:2008:i:12:p:1329-1344. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.