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Measures of Risk Aversion with Expected and Nonexpected Utility

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  • Montesano, Aldo

Abstract

In the expected utility case, the risk-aversion measure is given by the Arrow-Pratt index. Three proposals of a risk-aversion measure for the nonexpected utility case are examined. The first one sets "the second derivative of the acceptance frontier as a measure of local risk aversion." The second one takes into account the concavity in the consequences of the partial derivatives of the preference function with respect to probabilities. The third one measures risk aversion through the ratio between the risk premium and the standard deviation of the lottery. The third proposal catches the main feature ofrisk aversion, while the other two proposals are not always in accordance with the same crude definition of risk aversion, by which there is risk aversion when an agent prefers to get the expected value of a lottery rather than to participate in it. Copyright 1991 by Kluwer Academic Publishers

Suggested Citation

  • Montesano, Aldo, 1991. "Measures of Risk Aversion with Expected and Nonexpected Utility," Journal of Risk and Uncertainty, Springer, vol. 4(3), pages 271-283, July.
    • Handle: RePEc:kap:jrisku:v:4:y:1991:i:3:p:271-83
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    Cited by:

    1. Fausto Corradin & Domenico Sartore, 2020. "Risk Aversion: Differential Conditions for the Iso-Utility Curves with Positive Slope in Transformed Two-Parameter Distributions," Advances in Decision Sciences, Asia University, Taiwan, vol. 24(3), pages 142-217, September.
    2. Bernasconi, Michele, 1998. "Tax evasion and orders of risk aversion," Journal of Public Economics, Elsevier, vol. 67(1), pages 123-134, January.
    3. Gerd Weinrich, 1999. "Nondegenerate Intervals of No-Trade Prices for Risk Averse Traders," Theory and Decision, Springer, vol. 46(1), pages 79-99, February.
    4. Giuseppe Attanasi & Aldo Montesano, 2012. "The price for information about probabilities and its relation with risk and ambiguity," Theory and Decision, Springer, vol. 73(1), pages 125-160, July.
    5. Fausto Corradin & Domenico Sartore, 2020. "Risk Aversion: Differential Conditions for the Iso-Utility Curves with Positive Slope in Transformed Two-Parameter Distributions," Advances in Decision Sciences, Asia University, Taiwan, vol. 24(3), pages 142-217, September.

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