On Inverse Utility and Third-Order Effects in the Economics of Uncertainty

CORE Discussion Paper No. 2004/45

6 Pages Posted: 25 Oct 2006

See all articles by Rabah Amir

Rabah Amir

University of Arizona - Department of Economics; University of Arizona

Marcin Czupryna

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Date Written: May 2004

Abstract

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

Amir, Rabah and Czupryna, Marcin, On Inverse Utility and Third-Order Effects in the Economics of Uncertainty (May 2004). CORE Discussion Paper No. 2004/45. Available at SSRN: https://ssrn.com/abstract=939520 or http://dx.doi.org/10.2139/ssrn.939520

Rabah Amir (Contact Author)

University of Arizona - Department of Economics ( email )

Tucson, AZ 85721
United States

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

Marcin Czupryna

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

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