Normalized measures of concavity and Ross’s strongly more risk averse order

Liqun Liu () and Jack Meyer ()

Journal of Risk and Uncertainty, 2013, vol. 47, issue 2, 185-198

Abstract: The Arrow-Pratt (A-P) definitions of absolute and relative risk aversion dominate the discussion of risk aversion and defining “more risk averse”. Ross (Econometrica 49:621–663, 1981 ) notes, however, that being A-P more risk averse is not sufficient for addressing many important comparative static questions. Consequently he introduces “a new and stronger measure for comparing two agents’ attitudes towards risk…”. Ross does not provide a corresponding measure of risk aversion. This paper uses a normalized measure of concavity to characterize the Ross definition of strongly more risk averse on bounded intervals. Other properties and uses of these normalized measures of concavity are also presented. Copyright Springer Science+Business Media New York 2013

Keywords: Normalized concavity measures; Arrow-Pratt risk aversion; Strongly more risk averse; D81 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s11166-013-9173-9

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