An Economic Index of Riskiness

S-Tier
Journal: Journal of Political Economy
Year: 2008
Volume: 116
Issue: 5
Pages: 810-836

Score contribution per author:

4.022 = (α=2.01 / 2 authors) × 4.0x S-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

Define the riskiness of a gamble as the reciprocal of the absolute risk aversion (ARA) of an individual with constant ARA who is indifferent between taking and not taking that gamble. We characterize this index by axioms, chief among them a "duality" axiom that, roughly speaking, asserts that less risk-averse individuals accept riskier gambles. The index is positively homogeneous, continuous, and subadditive; respects first- and second-order stochastic dominance; and for normally distributed gambles is half of variance/mean. Examples are calculated, additional properties are derived, and the index is compared with others. (c) 2008 by The University of Chicago. All rights reserved.

Technical Details

RePEc Handle
repec:ucp:jpolec:v:116:y:2008:i:5:p:810-836
Journal Field
General
Author Count
2
Added to Database
2026-01-24