Paper #643

Título:

Stochastic dominance and absolute risk aversion

Autores:

Jordi Caballé y Joan Esteban

Data:

Julio 2002

Resumen:

In this paper we proose the infimum of the Arrow-Pratt index of absolute risk aversion as a measure of global risk aversion of a utility function. We then show that, for any given arbitrary pair of distributions, there exists a threshold level of global risk aversion such that all increasing concave utility functions with at least as much global risk aversion would rank the two distributions in the same way. Furthermore, this threshold level is sharp in the sense that, for any lower level of global risk aversion, we can find two utility functions in this class yielding opposite preference relations for the two distributions.

Palabras clave:

Risk aversion, stochastic dominance

Códigos JEL:

D81, D30

Área de investigación:

Microeconomía

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