A Generalization of Pratt-Arrow Measure to Nonexpected-Utility Preferences and Inseparable Probability and Utility
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 pref...
Veröffentlicht in: | Management Science. - Institute for Operations Research and the Management Sciences, 1954. - 49(2003), 8, Seite 1089-1104 |
---|---|
1. Verfasser: | |
Format: | Online-Aufsatz |
Sprache: | English |
Veröffentlicht: |
2003
|
Zugriff auf das übergeordnete Werk: | Management Science |
Schlagworte: | Criteria for Decision Making under Risk and Uncertainty Risk Aversion Uncertainty Aversion Expected-Utility Theory Nonexpected-Utility Smooth Preferences Economics Business |
Zusammenfassung: | 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. Risk-neutral probabilities and their derivatives are shown to be sufficient statistics for approximately optimal investment and financing decisions in complete markets for contingent claims. |
---|---|
ISSN: | 15265501 |