Broadly Decreasing Risk Aversion

Gregory M. Gelles and Douglas W. Mitchell
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Gregory M. Gelles: Department of Economics, 101 Harris Hall, University of Missouri-Rolla, Rolla, Missouri 65409-1250
Douglas W. Mitchell: Department of Economics, West Virginia University, Morgantown, West Virginia 26506-6025

Management Science, 1999, vol. 45, issue 10, 1432-1439

Abstract: This paper considers decision-making in the presence of two additive risk sources, with no restrictions on the relation between the two risks. A utility function is said to exhibit broad DARA if and only if a rise in wealth always decreases the magnitude of the risk premium for one of the risks vis-a-vis the other. A condition on utility functions giving this property is derived: utility must be of the linear plus exponential form. It is shown that certain problems involving portfolios and risk-averse firms give unambiguous comparative statics if and only if utility exhibits broad DARA.

Keywords: decision-making under risk; choice under uncertainty; two risk sources; risk premium; risk averse firm; portfolio choice (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:45:y:1999:i:10:p:1432-1439

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