An Economic Index of Riskiness

Robert Aumann and Roberto Serrano

Working Papers from CEMFI

Abstract: Define the riskiness of a gamble as the reciprocal of the absolute risk aversion (ARA) of an individual with constant ARA who is indifferent between taking and not taking that gamble. We characterize this index by axioms, chief among them a “duality” axiom which, roughly speaking, asserts that less risk-averse individuals accept riskier gambles. The index is positively homogeneous, continuous, and subadditive, respects first and second order stochastic dominance, and for normally distributed gambles, is half of variance/mean. Examples are calculated, additional properties derived, and the index is compared with others.

Date: 2007
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: An Economic Index of Riskiness (2008)
Working Paper: An Economic Index of Riskiness (2007)
Working Paper: An Economic Index of Riskiness (2007)
Working Paper: An economic index of riskiness (2007)
Working Paper: An Economic Index of Riskiness (2006)
Working Paper: An Economic Index of Riskiness (2006)
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