A Robust Approach to Risk Aversion

Antoine Bommier and François Le Grand (legrand@em-lyon.com)
Additional contact information
François Le Grand: EMLyon Business School, http://www.em-lyon.com/

No 13/172, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: We investigate whether the set of Kreps and Porteus (1978) preferences include classes of preferences that are stationary, monotonic and well-ordered in terms of risk aversion. We prove that the class of preferences introduced by Hansen and Sargent (1995) in their robustness analysis is the only one that fulfills these properties. The paper therefore suggests a shift from the traditional approach to studying the role of risk aversion in recursive problems. We also provide applications, in which we discuss the impact of risk aversion on asset pricing and risk sharing.

Keywords: risk aversion; recursive utility; robustness; ordinal dominance; risk free rate; equity premium; risk sharing (search for similar items in EconPapers)
JEL-codes: E2 E43 E44 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2013-01
New Economics Papers: this item is included in nep-ene, nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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