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| Author: | Nau, R.F. |
| Title: | A generalization of Pratt-Arrow measure to nonexpected-utility preferences and inseparable probability and utility |
| Journal: | Management Science
2003 : AUG, VOL. 49:8, p. 1089-1104 |
| Index terms: | Decision making Risk aversion Uncertainty Utility expectations Utility theory |
| Language: | eng |
| Abstract: | The Pratt-Arrow measure of local risk aversion is generalized for the n-dimensional state-preference model of choice under uncertainty in which the decision maker may have inseparable subjective probabilities and utilities, unobservable stochastic prior wealth, and/or smooth nonexpected-utility preferences. Local risk aversion is measured by the matrix of derivatives of the decision maker's risk-neutral probabilities, without reference to true subjective probabilities or riskless wealth positions, and comparative risk aversion is measured without requiring agreement on true probabilities. |
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