Decreasing absolute risk aversion, prudence and increased downside risk aversion

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• 作者：Liqun Liu (1) lliu@tamu.edu
  Jack Meyer (2) jmeyer@msu.edu
• 关键词：DARA – ; Downside risk – ; Downside risk aversion – ; Decreasing absolute risk aversion – ; Prudence
• 刊名：Journal of Risk and Uncertainty
• 出版年：2012
• 出版时间：June 2012
• 年：2012
• 卷：44
• 期：3
• 页码：243-260
• 全文大小：230.7 KB
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• 作者单位：1. Private Enterprise Research Center, Texas A&M University, 4231 TAMU, College Station, TX 77843, USA2. Department of Economics, Michigan State University, East Lansing, MI 48824, USA
• 刊物类别：Business and Economics
• 刊物主题：Economics
  Economic Theory
  Microeconomics
  Operation Research and Decision Theory
  Environmental Economics
  
• 出版者：Springer Netherlands
• ISSN：1573-0476

文摘

Downside risk increases have previously been characterized as changes preferred by all decision makers u(x) with u′′′(x) > 0. For risk averse decision makers, u′′′(x) > 0 also defines prudence. This paper finds that downside risk increases can also be characterized as changes preferred by all decision makers displaying decreasing absolute risk aversion (DARA) since those changes involve random variables that have equal means. Building on these findings, the paper proposes using “more decreasingly absolute risk averse” or “more prudent” as alternative definitions of increased downside risk aversion. These alternative definitions generate a transitive ordering, while the existing definition based on a transformation function with a positive third derivative does not. Other properties of the new definitions of increased downside risk aversion are also presented.