Risk aversion under preference uncertainty

Roman Kräussl, Andre Lucas and Arjen Siegmann

Finance Research Letters, 2012, vol. 9, issue 1, 1-7

Abstract: We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this result for optimal asset allocation: poor agents that are uncertain about their risk aversion parameter invest less in risky assets than wealthy investors with identical risk aversion uncertainty.

Keywords: Risk aversion; Preference uncertainty; Risk-taking; Optimal asset allocation (search for similar items in EconPapers)
JEL-codes: D11 D81 D84 G11 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Risk Aversion under Preference Uncertainty (2010)
Working Paper: Risk aversion under preference uncertainty (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:9:y:2012:i:1:p:1-7

DOI: 10.1016/j.frl.2011.08.001

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