MEANING OF ‘MORE RISK AVERSE’ WHEN PREFERENCES ARE OVER MEAN AND VARIANCE

Timothy Mathews ()

Manchester School, 2005, vol. 73, issue 1, 75-91

Abstract: Building upon the intuition of Ross, a definition of more risk averse is proposed for situations in which preferences are over mean and variance. If agents can be compared by this definition, the more risk averse agent will choose a less risky alternative. If this definition cannot be applied, it is not clear which agent will choose a riskier alternative. The definition applies whenever agents are ordered according to Ross's notion of more risk averse. The definition may or may not be consistent with the Arrow–Pratt notion of more risk averse (and therefore may apply when Ross's notion does not).

Date: 2005
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