On Aumann and Serrano's Economic Index of Risk

Posted: 17 Feb 2014

Multiple version iconThere are 2 versions of this paper

Date Written: February 16, 2014

Abstract

We study the risk index of an additive gamble proposed in Aumann and Serrano (J. Political Econ. 116(5):810-836, 2008). We establish a generalized duality result for this index and use it to prove Yaari (J. Econ. Theory 1:315-329, 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: Index of Risk, Duality, Gamble

JEL Classification: C00, D80, D81

Suggested Citation

Li, Minqiang, On Aumann and Serrano's Economic Index of Risk (February 16, 2014). Economic Theory, Vol. 55, No. 2, 2014, Available at SSRN: https://ssrn.com/abstract=2396906

Minqiang Li (Contact Author)

Bloomberg LP ( email )

731 Lexington Avenue
New York, NY 10022
United States

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