Abstract
This paper proposes an extension of the Pratt-Arrow analysis of decision making under uncertainty, based on a three-term Taylor approximation of the utility function. A two-parameter measure of risk aversion is defined? which incorporates both the risk’s variance and its skewness. The present approach gives better numerical approximations of the risk premium for risks which are not necessarily very small, provides new theoretical results, and also predicts unexpected behavior under certain conditions.
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© 1991 Springer Science+Business Media Dordrecht
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Szpiro, G.G. (1991). Risk Aversion As A Function Of Variance And Skewness. In: Chikán, A. (eds) Progress in Decision, Utility and Risk Theory. Theory and Decision Library, vol 13. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-3146-9_34
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DOI: https://doi.org/10.1007/978-94-011-3146-9_34
Publisher Name: Springer, Dordrecht
Print ISBN: 978-94-010-5387-7
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