An index of (absolute) correlation aversion: theory and some implications

David Crainich, Louis Eeckhoudt and Olivier Le Courtois
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Olivier Le Courtois: EM Lyon Business School

No 2013-ECO-12, Working Papers from IESEG School of Management

Abstract: The concept of absolute risk aversion proposed by K. Arrow (1965) and J. Pratt (1964) and the assumption that it is decreasing in wealth has played a central role in the analysis of risky choices. Ten years later S. Richard (1975) defined correlation aversion in the framework of bivariate utility functions. Surprisingly however the measure of the intensity of correlation aversion has received so far almost no attention. In this paper we define an index of (absolute) correlation aversion and stress some of its properties. Besides we show how the assumption that it is decreasing in wealth generates new results for the analysis of risky choices under bivariate utility. Finally we indicate how these notions can be extended to higher orders of risk attitudes.

Keywords: Correlation; aversion (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2013-06
New Economics Papers: this item is included in nep-evo, nep-mic and nep-upt
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ies:wpaper:e201312

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