Substituting one risk increase for another: A method for measuring risk aversion

• 成果类型: Article
• 署名作者: Liu, Liqun; Meyer, Jack
• 署名单位: Texas A&M University System; Texas A&M University College Station; Michigan State University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2013.10.002
• 发表日期: 2013
• 页码: 2706-2718
• 关键词: Risk premium; Rate of substitution; risk aversion; Comparative risk aversion; Expected utility model

摘要

This paper defines the rate of substitution of one stochastic change to a random variable for another. It then focuses on the case where one of these changes is an nth degree risk increase, and the other is an mth degree risk increase, where n > m >= 1. The paper shows that the rate of substitution for these two risk increases can be used to provide a broader definition and two additional characterizations of the nth degree Ross more risk averse partial order. The implications for local intensity measures of nth degree risk aversion are also examined. The analysis organizes the existing results as well as generates new ones. (C) 2013 Elsevier Inc. All rights reserved.