Decreasing Ross risk aversion : higher-order generalizations and implications
Journal of Mathematical Economics
Background risk, Decreasing n-th Ross risk aversion, Risk vulnerability: one-switch utility function
We define decreasing higher-degree Ross risk aversion and provide an intuitive interpretation for it. We show that all deteriorations of background risk in the sense of n -th risk increase raise risk aversion in the Arrow-Pratt sense if and only if decreasing ( n + 1 ) -th degree Ross risk aversion holds. Meanwhile, the utility functional form of the agent with decreasing ( n + 1 ) -th degree Ross risk aversion is specified. Our result also implies decreasing 3-rd degree Ross risk aversion can be used to characterize the sufficient condition of risk vulnerability. Moreover, our analysis shows the implication of decreasing n / m -th ( n > m ≥ 1 ) Ross risk aversion.
Copyright © 2014 Elsevier B.V.
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Wang, J., & Li, J. (2014). Decreasing Ross risk aversion: Higher-order generalizations and implications. Journal of Mathematical Economics, 55, 136-142. doi: 10.1016/j.jmateco.2014.02.002