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Arrow-Pratt Measures of Risk Aversion: The Multivariate Case

Haim Levy and Azriel Levy
International Economic Review
Vol. 32, No. 4 (Nov., 1991), pp. 891-898
DOI: 10.2307/2527041
Stable URL: http://www.jstor.org/stable/2527041
Page Count: 8
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Arrow-Pratt Measures of Risk Aversion: The Multivariate Case
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Abstract

Arrow-Pratt measures of risk aversion have been defined for the univariate case. For utility functions having the same ordinal preferences, we extend Arrow's probability premium index to the multivariate case and obtain a unique solution which can be employed to risk-aversion comparison analysis. We also extend Duncan's definition of the risk premium vector and show that it can be employed in comparative risk aversion once we confine ourselves to the same preference ordering. Hence, we end up with two multivariate risk indexes which are parallel to the Arrow and Pratt univariate indexes.

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