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Convex and decreasing absolute risk aversion is proper

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  • Huang, James

Abstract

Proper risk aversion, a pivotal concept in the study of behavioral conditions on utility functions, states that an undesirable risk can never be made desirable by the presence of an independent risk. It is well known that standard risk aversion is sufficient for this concept. We show in this short article that convex and decreasing absolute risk aversion is an alternative sufficient condition.

Suggested Citation

  • Huang, James, 2014. "Convex and decreasing absolute risk aversion is proper," Economics Letters, Elsevier, vol. 125(1), pages 123-125.
    • Handle: RePEc:eee:ecolet:v:125:y:2014:i:1:p:123-125
    DOI: 10.1016/j.econlet.2014.07.007
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    References listed on IDEAS

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    More about this item

    Keywords

    Proper risk aversion; Convex absolute risk aversion; Background risk;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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