Greater Arrow–Pratt (Absolute) risk aversion of higher orders

Liqun Liu and Kit Pong Wong

Journal of Mathematical Economics, 2019, vol. 82, issue C, 112-124

Abstract: Higher-order risk attitudes are related to higher-order moments of risk, and are unequivocally characterized by the signs and levels of higher-order derivatives of utility functions. In contrast to the direction of higher-degree risk aversion, the intensity of higher-degree risk aversion beyond the Arrow–Pratt measure of absolute risk aversion is far from conclusive. The purpose of this paper is to develop a unified framework of greater (m,n)th-degree mixed risk aversion in the Arrow–Pratt tradition, which includes many competing notions of greater higher-degree (absolute) risk aversion proposed in the extant literature as special cases. Properties of greater (m,n)th-degree mixed risk aversion are studied, a choice-based characterization is established, and several applications are presented.

Keywords: Comparative risk aversion; Mixed risk aversion; Stochastic dominance (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:82:y:2019:i:c:p:112-124

DOI: 10.1016/j.jmateco.2019.01.008

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