A property of preferences that causes an agent to prefer alternatives whose outcomes are relatively certain, even when the associated expected payoff is lower.
Questions tagged [risk-aversion]
85 questions
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Can a risk-averse agent's Certainty Equivalent be lower than the lowest possible outcome of a gamble?
Suppose there is an agent who faces the following gamble g:
50\$ with probability 1/3
100\$ with probability 1/3
150\$ with probability 1/3
Clearly, the E[g] = 100\$. Since agent is risk averse, we would expect that U(E[g]) < U(CE) , where CE is…
Paul
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What does it mean by saying someone is "effectively risk averse/loving"?
Recently I am reading a paper by Ortner & Chassang (2018) on corruption control. It is a nice paper to read, and the idea is kinda cool.
The game is as follows. There are 3 players, a principle, a monitor, and an agent. The agent can choose to…
Lin Jing
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Derivation of Arrow-Pratt risk aversion measure
This is a question about the derivation of Arrow-Pratt relative risk aversion measure $R(w)=-\dfrac{U^{''}(w)}{wU^{'}(w)}$.
I have an own way to derive it, but I really want how did the authors themselves come up with it.
I do not own the book…
user223794
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How do I show that it's optimal to invest in equal amount of 2 risky assets via mean-preserving spread?
Suppose a risk-averse investor with differentiable Bernoulli utility $u$ and wealth $w$ that can be allocated between asset $X$ and $Y$. Both $X,Y$ have positive expectations. If the investor invests a fraction $a$ of their wealth in $X$ and $1-a$…
Ludwig Gershwin
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