Broadly Decreasing Risk Aversion

This paper considers decision-making in the presence of two additive risk sources, with no restrictions on the relation between the two risks. A utility function is said to exhibit broad DARA if and only if a rise in wealth always decreases the magnitude of the risk premium for one of the risks vis-a-vis the other. A condition on utility functions giving this property is derived: utility must be of the linear plus exponential form. It is shown that certain problems involving portfolios and risk-averse firms give unambiguous comparative statics if and only if utility exhibits broad DARA.

• 저널Management Science · 45(10) · 1432–1439
• 토픽Financial Markets and Investment Strategies · Finance
• DOI10.1287/mnsc.45.10.1432
• 저자Gregory M. Gelles, Douglas W. Mitchell