Hostname: page-component-7dd5485656-c8zdz Total loading time: 0 Render date: 2025-10-30T15:27:56.043Z Has data issue: false hasContentIssue false
  • English
  • Français

Measures of Risk Aversion: Some Clarifying Comments

Published online by Cambridge University Press:  19 October 2009

Stephen M. Miller
Get access Rights & Permissions [Opens in a new window]

Extract

Two prominent views pertaining to measures of risk aversion can be found in the literature. First, Arrow [2] and Pratt [3]developed risk aversion measures based on the curvature characteristics of the individual investor's utility for wealth function. If the investor's utility for wealth function is given by V(W), then

are the Arrow-Pratt measures of absolute and relative risk aversion, respectively. The investor is risk averse or a risk lover as r(W) and r* (W) are positive or negative. The investor exhibits increasing, constant, or decreasing absolute risk aversion as while he exhibits increasing, constant, or decreasing relative risk aversion as .

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 10 , Issue 2 , June 1975 , pp. 299 - 309
Copyright
Copyright © School of Business Administration, University of Washington 1975

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

REFERENCES

[1]Adler, M. “On the Risk-Return Trade-off in the Valuation of Assets.” Journal of Financial and Quantitative Analysis, vol. 4 (December 1969), pp. 493–512.CrossRefGoogle Scholar
[2]Arrow, K. J.Essays in the Theory of Risk-Bearing. Chicago: Markham Publishing Company, 1971.Google Scholar
[3]Pratt, J. W. “Risk Aversion in the Small and in the Large.” Econometrica, vol. 32 (January/April 1964), pp. 122–136.CrossRefGoogle Scholar
[4]Sandmo, A. “Capital Risk, Consumption, and Portfolio Choice.” Econometrica, vol. 37 (October 1969), pp. 386–599.CrossRefGoogle Scholar
[5]Sandmo, A. “The Effect of Uncertainty on Saving Decisions.” The Review of Economic Studies, vol. 37 (July 1970), pp. 353–360.CrossRefGoogle Scholar
[6]Tobin, J. E. “Liquidity Preference as Behavior toward Risk.” The Review of Economic Studies, vol. 25 (February 1958), pp. 65–86.CrossRefGoogle Scholar