Decreasing Ross risk aversion : higher-order generalizations and implications
Document Type
Journal article
Source Publication
Journal of Mathematical Economics
Publication Date
12-1-2014
Volume
55
First Page
136
Last Page
142
Keywords
Background risk, Decreasing n-th Ross risk aversion, Risk vulnerability: one-switch utility function
Abstract
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.
DOI
10.1016/j.jmateco.2014.02.002
Print ISSN
03044068
E-ISSN
18731538
Publisher Statement
Copyright © 2014 Elsevier B.V.
Access to external full text or publisher's version may require subscription.
Additional Information
This paper is also available at Social Science Research Network at http://ssrn.com/abstract=1927316
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
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