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| Author: | Gelles, G. Mitchell, D. |
| Title: | Broadly decreasing risk aversion |
| Journal: | Management Science
1999 : OCT, VOL. 45:10, p. 1432-1439 |
| Index terms: | MANAGEMENT RISK AVERSION ECONOMICS |
| Language: | eng |
| Abstract: | This paper considers decision-making in the presence of two additive risk sources, with no restrictions on the relation between the two risks. A utility function is said to exhibit broad DARA if and only if a rise in wealth always decreases the magnitude of the risk premium for one of the risks vis-a-vis the other. A condition on utility functions giving this property is derived: utility must be of the linear plus exponential form. It is shown that certain problems involving portfolios and risk-averse firms give unambiguous comparative statics if and only if utility exhibits broad DARA. |
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