On Inverse Utility and Third-Order Effects in the Economics of Uncertainty
CORE Discussion Paper No. 2004/45
6 Pages Posted: 25 Oct 2006
Date Written: May 2004
We prove that the coefficient of absolute prudence is greater than k - times coefficient of absolute risk aversion for the utility function if and only if the coefficient of absolute prudence is (3-k) times the coefficient of absolute risk aversion for the inverse utility function. Moreover this is also equivalent to (k-2)-concavity of the first derivative of the inverse utility function.
Keywords: absolute prudence, absolute risk aversion, inverse utility function
JEL Classification: D80, D81
Suggested Citation: Suggested Citation