On Aumann and Serrano's Economic Index of Risk
36 Pages Posted: 4 Apr 2013
Date Written: April 2, 2008
We study the risk index of an additive gamble proposed in Aumann and Serrano (2008). We establish a generalized duality result for this index and use it to prove Yaari's (1969) alternative characterization of DARA utilities. A new characterization result for the risk index is obtained through essentially monotonic risk aversion utilities. We also extend the domain of gambles by introducing a price for gambles. We then develop a theory on the risk index for multiplicative gambles. Relative risk aversion functions for multiplicative gambles play the same role as absolute risk aversion functions for additive gambles.
Keywords: Risk index, Attractiveness index, Duality, Additive gambles, Multiplicative gambles
JEL Classification: C00, D80, D81
Suggested Citation: Suggested Citation