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Relative Risk Aversion: What Do We Know?

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  • Donald Meyer
  • Jack Meyer

Abstract

The relative risk aversion measure that represents the risk preferences of a decision maker depends on the outcome variable that is used as the argument of the utility function, and on the way that outcome variable is defined or measured. In addition, the relationship between any two such relative risk aversion measures is determined by the relationship between the corresponding outcome variables. These well-known facts are used to adjust several reported estimates of relative risk aversion so that those estimates can be directly compared with one another. After adjustment, the significant variation in the reported relative risk aversion measures for representative decision makers is substantially reduced. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Donald Meyer & Jack Meyer, 2005. "Relative Risk Aversion: What Do We Know?," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 243-262, December.
    • Handle: RePEc:kap:jrisku:v:31:y:2005:i:3:p:243-262
    DOI: 10.1007/s11166-005-5102-x
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    References listed on IDEAS

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    risk aversion; relative risk aversion;

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