Estimating Risk Aversion from Arrow-Debreu Portfolio Choice

Hal Varian ()

Econometrica, 1988, vol. 56, issue 4, 973-79

Abstract: This paper derives necessary and sufficient conditions for Arrow-Debreu choices of contingent consumption to be compatibl e with the maximization of a state-independent expected utility funct ion that exhibits increasing or decreasing absolute risk aversion, or increasing or decreasing relative risk aversion. The conditions can be used to bound different measures of risk aversion based on a singl e observation of Arrow-Debreu portfolio choice. Copyright 1988 by The Econometric Society.

Date: 1988
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