An Economic Index of Relative Riskiness
In their seminal works, Arrow (1965) and Pratt (1964) defined two aspects of risk aversion: absolute risk aversion and relative risk aversion. Based on their definitions, we define two aspects of risk: absolute risk and relative risk. We consider situations in which, by making an investment, an agent exchanges a certain amount of wealth w by a random distributed level of wealth W. In such situations, we define absolute risk as the riskiness of a gamble that is distributed as W-w, and relative risk as the riskiness of a security that is distributed as W/w. We measure absolute risk by the Aumann and Serrano (2008) index of riskiness and relative risk by an equivalent index that we develop in this paper. The two concepts of risk do not necessarily agree on which one of two investments is riskier, and hence they capture two different aspects of risk.
|Date of creation:||31 Jan 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Feldman Building - Givat Ram - 91904 Jerusalem|
Web page: http://www.ratio.huji.ac.il/
More information through EDIRC
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.:
- Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
- Dean Foster & Sergiu Hart, 2007.
"An Operational Measure of Riskiness,"
843644000000000095, UCLA Department of Economics.
- Robert J. Aumann & Roberto Serrano, 2007.
"An economic index of riskiness,"
2007-08, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
- Robert J. Aumann & Roberto Serrano, 2007. "An Economic Index of Riskiness," Levine's Bibliography 321307000000000836, UCLA Department of Economics.
- Robert J. Aumann & Roberto Serrano, 2007. "An Economic Index of Riskiness," Discussion Paper Series dp446, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
- Robert J. Aumann & Roberto Serrano, 2006. "An Economic Index of Riskiness," Levine's Bibliography 321307000000000585, UCLA Department of Economics.
- Roberto Serrano & Robert J. Aumann, 2007. "An Economic Index Of Riskiness," Working Papers wp2007_0706, CEMFI.
- Robert J. Aumann & Roberto Serrano, 2006. "An Economic Index of Riskiness," Working Papers 2006-20, Brown University, Department of Economics.
- G. Hanoch & H. Levy, 1969. "The Efficiency Analysis of Choices Involving Risk," Review of Economic Studies, Oxford University Press, vol. 36(3), pages 335-346.
- Hart, Sergiu & Foster, Dean P., 2013.
"A wealth-requirement axiomatization of riskiness,"
Econometric Society, vol. 8(2), May.
- Sergiu Hart, 2011.
"Comparing Risks by Acceptance and Rejection,"
Journal of Political Economy,
University of Chicago Press, vol. 119(4), pages 617 - 638.
When requesting a correction, please mention this item's handle: RePEc:huj:dispap:dp597. 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: (Tomer Siedner)
If references are entirely missing, you can add them using this form.