I was trying to understand this risk cost function:

I suppose that comes from Relative Risk Aversion coefficient:

But I need help to understand the intuition behind de cost function and how it is derived.

  • 1
    $\begingroup$ It would be helpful if you could provide some context in which the formula is used. Note also that $-\frac{U''(x)}{U'(x)}$ is the coefficient of absolute risk aversion, and $Var(X)$ is sometimes used as a measure of risk contained in random variable $X$. $\endgroup$
    – Herr K.
    Jan 31, 2022 at 16:51
  • $\begingroup$ Where did you find this cost function? $\endgroup$
    – High GPA
    Feb 6, 2022 at 8:54


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