risk aversion is to allow a convenient interpretation of a particular assumption concern-
ing risk preferences. It is easier to interpret the statement that R(x) is a constant than it
is to interpret the statement that A(x) takes the form
A(x)
=
α
x
even though these are
equivalent statements.
3.4.7Ross’s Strongly More Risk Averse Order
For a number of important decisions, it is the case that the assumption that A
u
(x) ≥ A
v
(x)
for all x is not sufficient to predict how one decision maker chooses differently than
another. This is especially true in decision models where there is more than one source of
randomness. Ross (1981) proposes ...
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