Monotone Risk Aversion
Lars Tyge Nielsen
affiliation not provided to SSRN
Economic Theory, Vol. 25, pp. 203-215, 2005
This paper defines decreasing absolute risk aversion in purely behavioral terms without any assumption of differentiability and shows that a strictly increasing and risk averse utility function with decreasing absolute risk aversion is necessarily differentiable with an absolutely continuous derivative. A risk averse utility function has decreasing absolute risk aversion if and only if it has a decreasing absolute risk aversion density, and if and only if the cumulative absolute risk aversion function is increasing and concave. This leads to a characterization of all such utility functions. Analogues of these results also hold for increasing absolute and for increasing and decreasing relative risk aversion.
Keywords: Absolute risk aversion, relative risk aversion, decreasing risk aversion, increasing risk aversion, cumulative absolute risk aversion, cumulative relative risk aversion.
JEL Classification: D81Accepted Paper Series
Date posted: March 9, 2005
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo8 in 0.313 seconds