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A More General Measure of Risk Aversion When Utility Is State-Dependent

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  • Kelsey, David
  • Nordquist, Gerald L

Abstract

In this paper, the authors propose a method for comparing risk aversion within the state-dependent utility model. This model is useful for analyzing economic problems relating to health or life. The authors extend the Arrow-Pratt measure of risk aversion to the case where utility is state-dependent. Their measure is a generalization of earlier methods of comparing risk aversion in this context, since it agrees with them where they are defined, but can be applied to a much larger class of utility functions. The authors show how their analysis can be applied to a simple model of demand for insurance. Copyright 1991 by Royal Economic Society.

Suggested Citation

  • Kelsey, David & Nordquist, Gerald L, 1991. "A More General Measure of Risk Aversion When Utility Is State-Dependent," Oxford Economic Papers, Oxford University Press, vol. 43(1), pages 59-74, January.
    • Handle: RePEc:oup:oxecpp:v:43:y:1991:i:1:p:59-74
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    Cited by:

    1. Liqun Liu & Andrew Rettenmaier & Thomas Saving, 2009. "Conditional payments and self-protection," Journal of Risk and Uncertainty, Springer, vol. 38(2), pages 159-172, April.
    2. Robert Jarrow & Siguang Li, 2021. "Concavity, stochastic utility, and risk aversion," Finance and Stochastics, Springer, vol. 25(2), pages 311-330, April.
    3. Robert F. Nau, 2003. "A Generalization of Pratt-Arrow Measure to Nonexpected-Utility Preferences and Inseparable Probability and Utility," Management Science, INFORMS, vol. 49(8), pages 1089-1104, August.

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