Decreasing Ross risk aversion: Higher-order generalizations and implications

Jianli Wang and Jingyuan Li

Journal of Mathematical Economics, 2014, vol. 55, issue C, 136-142

Abstract: We define decreasing higher-degree Ross risk aversion and provide an intuitive interpretation for it. We show that all deteriorations of background risk in the sense of n-th risk increase raise risk aversion in the Arrow–Pratt sense if and only if decreasing (n+1)-th degree Ross risk aversion holds. Meanwhile, the utility functional form of the agent with decreasing (n+1)-th degree Ross risk aversion is specified. Our result also implies decreasing 3-rd degree Ross risk aversion can be used to characterize the sufficient condition of risk vulnerability. Moreover, our analysis shows the implication of decreasing n/m-th (n>m≥1) Ross risk aversion.

Keywords: Decreasing n-th Ross risk aversion; Background risk; Risk vulnerability: one-switch utility function (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:55:y:2014:i:c:p:136-142

DOI: 10.1016/j.jmateco.2014.02.002

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