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MEANING OF ‘MORE RISK AVERSE’ WHEN PREFERENCES ARE OVER MEAN AND VARIANCE
Author(s) -
MATHEWS TIMOTHY
Publication year - 2005
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2005.00425.x
Subject(s) - intuition , variance (accounting) , economics , arrow , meaning (existential) , mathematical economics , microeconomics , computer science , epistemology , philosophy , accounting , programming language
Building upon the intuition of Ross, a definition of more risk averse is proposed for situations in which preferences are over mean and variance. If agents can be compared by this definition, the more risk averse agent will choose a less risky alternative. If this definition cannot be applied, it is not clear which agent will choose a riskier alternative. The definition applies whenever agents are ordered according to Ross's notion of more risk averse. The definition may or may not be consistent with the Arrow–Pratt notion of more risk averse (and therefore may apply when Ross's notion does not).