Comparative Risk Aversion of Different Preferences

Comparative Risk Aversion for State-Dependent Preferences

Nonparametric comparative revealed risk aversion

We introduce a nonparametric method to compare risk aversion of dišerent investors based on revealed preference methods. Using Yaari’s (1969) denition of “more risk averse than”, we show that it is su›cient to compare the revealed preference relations of two investors. is makes the approach operational; the central rationalisability theorem provides strong support for this approach. e approach...

Tuned Risk Aversion as Interpretation of Non-Expected Utility Preferences∗

We introduce the notion of Tuned Risk Aversion as a possible interpretation of non-expected utility preferences. It refers to tuning patterns of risk (and ambiguity) aversion to the composition of a lottery (or act) at hand, assuming only an overall ‘budget’ for accumulated risk aversion over its sub-lotteries. This makes the risk aversion level applied to a part intrinsically depending on the ...

Feasible sets, comparative risk aversion, and comparative uncertainty aversion in bargaining

We study feasible sets of the bargaining problem under two different assumptions: the players are subjective expected utility maximizers or the players are Choquet expected utility maximizers. For the latter case, we consider the effects on bargaining solutions when players become more risk averse and when they become more uncertainty averse. JEL Classification: C78, D81

Risk Preferences and Loss Aversion in Portfolio Optimization

Traditionally, portfolio optimization is associated with finding the ideal trade-off between return and risk by maximizing the expected utility. Investor’s preferences are commonly assumed to follow a quadratic or power utility function, and asset returns are often assumed to follow a Gaussian distribution. Investment analysis has therefore long been focusing on the first two moments of the dis...