An Economic Index of Riskiness

Robert J. Aumann and Roberto Serrano ()

Journal of Political Economy, 2008, vol. 116, issue 5, pages 810-836

Abstract: Define the riskiness of a gamble as the reciprocal of the absolute risk aversion (ARA) of an individual with constant ARA who is indifferent between taking and not taking that gamble. We characterize this index by axioms, chief among them a "duality" axiom that, roughly speaking, asserts that less risk-averse individuals accept riskier gambles. The index is positively homogeneous, continuous, and subadditive; respects first- and second-order stochastic dominance; and for normally distributed gambles is half of variance/mean. Examples are calculated, additional properties are derived, and the index is compared with others. (c) 2008 by The University of Chicago. All rights reserved..

Date: 2008

Downloads: (external link)
http://www.journals.uchicago.edu/doi/pdf/10.1086/591947 link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: An Economic Index of Riskiness (2007)
Working Paper: An Economic Index of Riskiness (2006)
Working Paper: An economic index of riskiness (2007)
Working Paper: AN ECONOMIC INDEX OF RISKINESS (2007)
Working Paper: An Economic Index of Riskiness (2006)
Working Paper: An Economic Index of Riskiness (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ucp:jpolec:v:116:y:2008:i:5:p:810-836

Ordering information: This journal article can be ordered from
http://www.journals.uchicago.edu/JPE/order1.html

Access Statistics for this article

Journal of Political Economy is edited by Steven D. Levitt, MONIKA PIAZZESI, CANICE PRENDERGAST and ROBERT SHIMER

More articles in Journal of Political Economy from University of Chicago Press
Address: The University of Chicago Press, Journals Division, P.O. Box 37005 Chicago, IL 60637
Series data maintained by Christopher F. Baum ().