Burr Utility

CentER Discussion Paper Series No. 2010-81

Posted: 8 Aug 2010

See all articles by Masako Ikefuji

Masako Ikefuji

University of Tsukuba

Roger J. A. Laeven

University of Amsterdam - Department of Quantitative Economics (KE)

J.R. Magnus

Vrije Universiteit Amsterdam, School of Business and Economics

Chris Muris

affiliation not provided to SSRN

Date Written: August 4, 2010

Abstract

This note proposes the Burr utility function. Burr utility is a flexible two-parameter family that behaves approximately power-like (CRRA) remote from the origin, while exhibiting exponential-like (CARA) features near the origin. It thus avoids the extreme behavior of the power family near the origin. We show how to characterize Burr utility as a special case in the general class of utility functions with non-increasing and convex absolute risk aversion, and non-decreasing and concave relative risk aversion. We further show its connection to the Burr probability distribution. A related class of generalized exponential utility functions is also studied.

Keywords: Cardinal scale, Utility function, Harmonic absolute risk aversion

JEL Classification: D81

Suggested Citation

Ikefuji, Masako and Laeven, Roger Jean Auguste and Magnus, Jan R. and Muris, Chris, Burr Utility (August 4, 2010). CentER Discussion Paper Series No. 2010-81. Available at SSRN: https://ssrn.com/abstract=1654323

Masako Ikefuji

University of Tsukuba ( email )

Tsukuba University , Ibaraki Ken
Tsukuba, Ibaraki 305-8573, Ibaraki 3050006
Japan

Roger Jean Auguste Laeven

University of Amsterdam - Department of Quantitative Economics (KE) ( email )

Valckenierstraat 65-67
Amsterdam, 1018 XE
Netherlands
+31 20 525 4252 (Phone)

HOME PAGE: http://www.rogerlaeven.com

Jan R. Magnus (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Chris Muris

affiliation not provided to SSRN ( email )

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