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Stochastic dominance and absolute risk aversion

Jordi Caballe () and Joan Esteban ()

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: In this paper we proose the infimum of the Arrow-Pratt index of absolute risk aversion as a measure of global risk aversion of a utility function. We then show that, for any given arbitrary pair of distributions, there exists a threshold level of global risk aversion such that all increasing concave utility functions with at least as much global risk aversion would rank the two distributions in the same way. Furthermore, this threshold level is sharp in the sense that, for any lower level of global risk aversion, we can find two utility functions in this class yielding opposite preference relations for the two distributions.

Keywords: Risk aversion; stochastic dominance (search for similar items in EconPapers)
JEL-codes: D81 D30 (search for similar items in EconPapers)
Date: 2002-07
New Economics Papers: this item is included in nep-rmg
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Related works:
Journal Article: Stochastic Dominance and Absolute Risk Aversion (2007) Downloads
Working Paper: Stochastic Dominance and Absolute Risk Aversion (2003) Downloads
Working Paper: Stochastic Dominance and Absolute Risk Aversion (2003) Downloads
Working Paper: Stochastic Dominance and Absolute Risk Aversion (2002) Downloads
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