Risk Aversion in the Small and in the Large¶
Pratt, J. W. (1964). Risk Aversion in the Small and in the Large. Econometrica, 32(1), 1-2.
Cited by¶
3 citations across 3 artifacts.
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Primes¶
- Expected Utility
- Utility-of-wealth functions and their curvature underwrite the formal treatment of risk aversion (Pratt 1964; Arrow 1965) through the coefficient of absolute and relative risk aversion.
This sourceDerives the coefficient of absolute risk aversion from the curvature of the von Neumann
- Utility-of-wealth functions and their curvature underwrite the formal treatment of risk aversion (Pratt 1964; Arrow 1965) through the coefficient of absolute and relative risk aversion.
- Marginal Utility
- … over outcomes), the agent maximizes expected utility $E[U] = \sum_s p_s U(x_s)$, and the marginal utility of wealth in state $s$ determines risk aversion through the Arrow-Pratt coefficient $r(x) = -U''(x) / U'(x)$ (the ratio of the second to the first derivative of $U$, a measure of curvature concavity)
This sourceDerives the coefficient of absolute risk aversion from the curvature of the von Neumann–Morgenstern utility function and links concavity to the risk premium, grounding why risk-averse agents value variance-reducing moves such as diversification and insurance.
- … over outcomes), the agent maximizes expected utility $E[U] = \sum_s p_s U(x_s)$, and the marginal utility of wealth in state $s$ determines risk aversion through the Arrow-Pratt coefficient $r(x) = -U''(x) / U'(x)$ (the ratio of the second to the first derivative of $U$, a measure of curvature concavity)
- Risk Aversion
- and Pratt (1964)
This sourceDerives the coefficient of absolute risk aversion r_A(w) = −U''(w)/U'(w) from the curvature of the von Neumann–Morgenstern utility function and links concavity to the risk premium, grounding why risk-averse agents value variance-reducing moves such as diversification and insurance.
- and Pratt (1964)
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