Reversibly greater downside risk aversion

Donald Keenan and Arthur Snow ()
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Arthur Snow: University of Georgia

The Geneva Risk and Insurance Review, 2022, vol. 47, issue 2, No 3, 327-338

Abstract: Abstract It is shown that, for the Arrow–Pratt measure $$r_u=-u''/u'$$ r u = - u ′ ′ / u ′ and the third-order measure $$D_u=u'''/u'-3r_u^2,$$ D u = u ′ ′ ′ / u ′ - 3 r u 2 , an increase in both risk-preference measures, when utility changes from u to v, yields a strict partial ordering by greater downside risk aversion, in that v is then a risk-averse and downside risk-averse transformation of u. More decisively, the result is reversible and, so, a decrease in both measures yields an ordering of utility functions by less downside risk aversion.

Keywords: Downside risk aversion; Risk aversion; Prudence (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1057/s10713-021-00072-5

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