The Impact of Risk Aversion on the Cost of the Contract When the Risk-Averse Agent Has a Constant Relative Risk Aversion Utility Function

2009 ◽  
Author(s):  
Varda Lewinstein Yaari
Keyword(s):  
Relative Risk ◽  
Risk Aversion ◽  
Utility Function ◽  
Risk Averse ◽  
Relative Risk Aversion ◽  
Constant Relative Risk Aversion ◽  
The Cost ◽  
The Impact

A Simplified Measure of Investor Risk Aversion

2020 ◽  
pp. 026010792092451
Author(s):  
John Grable ◽  
Eun Jin Kwak ◽  
Martha Fulk ◽  
Aditi Routh
Keyword(s):  
United States ◽  
Relative Risk ◽  
Risk Aversion ◽  
Risk Taking ◽  
Measurement Techniques ◽  
Revealed Preference ◽  
The United States ◽  
Relative Risk Aversion ◽  
Measures Of Risk ◽  
Constant Relative Risk Aversion

This article introduces a simplified measure of investor risk aversion. The singleitem question combines elements from revealed preference and propensity measurement techniques in a way that matches traditional constant relative risk-aversion estimation procedures. Based on survey data from 500 investors living in the United States, scores from the proposed measure were found to correlate with other measures of risk aversion, as well as with indicators of risk-taking. A validity test showed that answers to the proposed measure were statistically associated with equity and cash ownership holdings in respondent portfolios. The simplicity and intuitive nature of the proposed measure and the alignment of question response categories to estimates of constant relative risk aversion make this a potentially valuable addition to the toolkit of researchers, financial educators, investors and those who provide advice to investors. JEL: C83, D10, D11, D14, D19, D81

scholarly journals Partnerships of Bidders with Constant Relative Risk Aversions

2020 ◽  
Vol 2020 ◽  
pp. 1-7
Author(s):  
Pingping Zhao ◽  
Kaili Xiang ◽  
Peimin Chen
Keyword(s):  
Relative Risk ◽  
Risk Aversion ◽  
Relative Risk Aversion ◽  
Unique Equilibrium ◽  
Risk Neutral ◽  
Bid Price ◽  
Risk Aversion Coefficient ◽  
Constant Relative Risk Aversion ◽  
The Difference

In this paper, we study a dynamic auction for allocating a single indivisible project while different participants have different bid values for the project. When the price rises continuously, the bidders can retreat the auction and obtain the compensation by the difference between the price at retreating time and the previous bid price. The final successful bidder achieves the project and pays compensations to others. We show that the auction of bidders with constant relative risk aversion (CRRA) has a unique equilibrium. While the relative risk aversion coefficient approaches to zero, the equilibrium with CRRA bidders would approach to the equilibrium with risk-neutral bidders.

Contracting around International Uncertainty

2005 ◽  
Vol 99 (4) ◽  
pp. 549-565 ◽  
Author(s):  
BARBARA KOREMENOS
Keyword(s):  
Relative Risk ◽  
International Relations ◽  
Risk Aversion ◽  
Random Sample ◽  
Common Ground ◽  
International Agreements ◽  
Relative Risk Aversion ◽  
Expected Benefits ◽  
The Cost ◽  
Available Information

International cooperation is plagued by uncertainty. Although states negotiate the best agreements possible using available information, unpredictable things happen after agreements are signed that are beyond states' control. States may not even commit themselves to an agreement if they anticipate that circumstances will alter their expected benefits. Duration provisions can insure states in this context. Specifically, the use of finite duration depends positively on the degree of uncertainty and states' relative risk aversion and negatively on the cost. These formally derived hypotheses strongly survive a test with data on a random sample of agreements across all four of the major issue areas in international relations. Not only do the results, highlighting evidence on multiple kinds of flexibility provisions, strongly suggest that the design of international agreements is systematic and sophisticated; but also they call attention to common ground among various subfields of political science and law.

Variable annuities and aggregate mortality risk

2016 ◽  
Vol 237 ◽  
pp. R55-R61 ◽  
Author(s):  
Martin Weale ◽  
Justin van de Ven
Keyword(s):  
Relative Risk ◽  
Risk Aversion ◽  
Mortality Risk ◽  
Mortality Rates ◽  
Risk Averse ◽  
Actual Cost ◽  
Relative Risk Aversion ◽  
Variable Annuities ◽  
Actual Mortality ◽  
Specific Mortality

This paper explores the extent to which annuitants might be prepared to pay for protection against cohort-specific mortality risk, by comparing traditional indexed annuities with annuities whose payout rates are revised in response to differences between expected and actual mortality rates of the cohort in question. It finds that a man aged 65 with a coefficient of relative risk aversion of two would be prepared to pay 75p per £100 annuitised for protection against aggregate mortality risk while a man with risk aversion of twenty would be prepared to pay £5.75 per £100; studies put the actual cost at £2.70–£7 per £100, suggesting that unless annuitants are very risk averse it is likely that existing products tend to over-insure against cohort mortality risk.

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