New answers tagged risk-aversion
4
votes
Accepted
What is the economic intuition of prudence in the static case?
Prudence has to do with the response of how additional dimensions of uncertainty impacts the preference or aversion to that uncertainty.
To illustrate, prudence (the sign of $u'''(\cdot)$) impacts the ...
- 7,994
0
votes
Has the Arrow-Pratt measure a lower bound with DARA utlity?
Ok, I think the answer is no. There does not exist a utility function satisfying DARA such that $A(x)>\frac{1}{x}$ for all $x\in R_+$.
To prove that, let's assume such a function exists. Then, ...
- 53
1
vote
Deriving the constant relative risk aversion utility function
Here is the solution from class,
\begin{align}
-w\frac{u''(w)}{u'(w)} &= \rho\\
\frac{u''(w)}{u'(w)} &= -\frac{\rho}{w}\\
\frac{d}{dw}\big(\log u'(w)\big) &= \frac{d}{dw}\big(\...
3
votes
Deriving the constant relative risk aversion utility function
This is just a consequence of the (here tacit) assumption that $u'>0$.
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