The Arrow/Pratt measure is a measure for the risk aversion of a Entscheiders.Es is designated after Kenneth Arrow and John Pratt.

Definition

If u is a differentiable use function, then the Arrow/Pratt measure of the absolute risk aversion is defined as

ARA (x) = - \ frac {u '' (x)}{u'(x)}.

The Arrow/Pratt measure for the relative risk aversion is

RRA (x) = ARA (x) * x.

A Entscheider i is called more risikoaverser than a Entscheider j, if from its use functions u_i and u_j results

\ forall x: ARA_i (x) \ ge ARA_j (x).

Characteristics

The Arrow/Pratt measure is invariant in relation to a positively linear transformation of the use function and is suitable thereby for Neumann/morning star theory.

Articles in category "Arrow/Pratt measure"

We found here 2 articles.

Related Websites

We found here 6 related websites.

• A Note on Partial Insurance and the Arrow-Pratt Measure of Risk ...
  Downloadable ! Author(s): W. Chiu. 2005 Abstract: Pratt [1964] establishes that a more risk-averse individual in the Arrow-Pratt sense has a higher ...


• Arrow-Pratt Measure - Dictionary Definition of Arrow-Pratt Measure
  Arrow-Pratt Measure Defined - A Dictionary Definition of Arrow-Pratt Measure.


• Economics 52
  Calculate his Arrow-Pratt measure of absolute risk aversion. ... Since his Arrow-Pratt measure is positive (and his utility function is concave), ...


• EconPort - Handbook - Decision-Making Under Uncertainty ...
  Using these facts, Kenneth Arrow and John Pratt developed a widely-used measure of risk-aversion called, unsurprisingly, the Arrow-Pratt measure of ...


• SSRN-Certainty preference and the Arrow-Pratt measure by Ulrich ...
  SSRN-Certainty preference and the Arrow-Pratt measure by Ulrich Schmidt.


• Theory of Risk Aversion
  How does one measure the "degree" of risk aversion of an agent ... As we can see, the Arrow-Pratt measure of absolute risk aversion cannot capture a ...