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Handbook of the Economics of Risk and Uncertainty
book

Handbook of the Economics of Risk and Uncertainty

by Mark Machina, W. Kip Viscusi
November 2013
Beginner content levelBeginner
896 pages
35h 10m
English
North Holland
Content preview from Handbook of the Economics of Risk and Uncertainty
The Theory of Risk and Risk Aversion
113
A form for A
u
(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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Publisher Resources

ISBN: 9780444536853