Parametric characterizations of risk aversion and prudence

Lars Nielsen and Fatma Lajeri ()

Economic Theory, 2000, vol. 15, issue 2, 469-476

Abstract: Our first main result says that whether one decision maker is more risk averse than another can be determined from their attitudes toward a given two-parameter family of risks. When all risks belong to this family, risk aversion can be compared even when initial wealth is random. Our second main result solves a long-standing problem in mean-variance analysis: what is the interpretation of the concavity of utility as a function of mean and variance? We show that in the case of normal distributions, this utility function is concave if and only if the agent has decreasing prudence.

Keywords: Risk aversion; Prudence. (search for similar items in EconPapers)
Date: 2000-02-21
Note: Received: July 29, 1996; revised: October 2, 1998
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Citations: View citations in EconPapers (48)

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Working Paper: Parametric Characterizations of Risk Aversion and Prudence (1997)
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