The monetary utility premium and interpersonal comparisons
Utility premium, Risk aversion, Higher-degree risk aversion, Comparative risk aversion
The utility premium is generally defined as the pain or reduction in expected utility caused by an nth-degree risk increase, where n≥2. While it is a very useful concept in understanding a decision maker’s choice in uncertain situations, the utility premium is not interpersonally comparable. This note shows that the monetary utility premium–the utility premium divided by the expected marginal utility at the random starting wealth–is interpersonally comparable, and the comparison is characterized by Ross more risk aversion of the corresponding degree.
Copyright © 2014 Elsevier B.V.
Access to external full text or publisher's version may require subscription.
Li, J., & Liu, L. (2014). The monetary utility premium and interpersonal comparisons. Economics Letters, 152(2), 257-260. doi: 10.1016/j.econlet.2014.09.006