Substituting one risk increase for another: A method for measuring risk aversion

Liqun Liu and Jack Meyer ()

Journal of Economic Theory, 2013, vol. 148, issue 6, 2706-2718

Abstract: This paper defines the rate of substitution of one stochastic change to a random variable for another. It then focuses on the case where one of these changes is an nth degree risk increase, and the other is an mth degree risk increase, where n>m⩾1. The paper shows that the rate of substitution for these two risk increases can be used to provide a broader definition and two additional characterizations of the nth degree Ross more risk averse partial order. The implications for local intensity measures of nth degree risk aversion are also examined. The analysis organizes the existing results as well as generates new ones.

Keywords: Risk premium; Rate of substitution; Risk aversion; Comparative risk aversion; Expected utility model (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:6:p:2706-2718

DOI: 10.1016/j.jet.2013.10.002

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