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On the relationship between absolute prudence and absolute risk aversion

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Abstract

For a utility function \(u\left( x\right) \), the functions \(a\left( x\right) =-u^{\prime\prime}\left( x\right) /u^{\prime}\left( x\right) \) and \(p\left( x\right) =-u^{\prime\prime\prime}\left( x\right) /u^{\prime\prime}\left( x\right) \) are the Arrow-Pratt coefficient of absolute risk aversion (ara) and the coefficient of absolute prudence (ap). They measure respectively an agent’s sensitivity to risk and the strength of the precautionary saving motive under income uncertainty.

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Authors and Affiliations

  1. Dipartimento di Ricerche Aziendali, Università degli Studi di Pavia,  

    Mario A. Maggi

  2. Dipartimento di Economia Politica e Metodi Quantitativi, Università degli Studi di Pavia,  

    Umberto Magnani

  3. Dipartimento di Economia, Università degli Studi di Parma,  

    Mario Menegatti

Authors
  1. Mario A. Maggi
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  2. Umberto Magnani
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  3. Mario Menegatti
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Maggi, M.A., Magnani, U. & Menegatti, M. On the relationship between absolute prudence and absolute risk aversion. Decisions Econ Finan 29, 155–160 (2006). https://doi.org/10.1007/s10203-006-0064-2

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  • DOI: https://doi.org/10.1007/s10203-006-0064-2

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