(x) that exhibits DARA, and that is commonly used, is
A
u
(x)
=
α
x
for
α > 0. This family of risk aversion measures, indexed by α, has the feature that A
u
(x) is
always decreasing, but does not become zero for any finite value for x. These A
u
(x) rep-
resent risk preferences for which the reaction to a given risk diminishes as the starting
position is increased, but risk aversion never disappears. The form for the utility function
leading to these absolute risk aversion measures is
These risk preferences and this particular functional form for utility also display constant
relative risk aversion (CRRA) ...
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