A Generalization of Pratt-Arrow Measure to Nonexpected-Utility Preferences and Inseparable Probability and Utility

@article{Nau2003AGO,
  title={A Generalization of Pratt-Arrow Measure to Nonexpected-Utility Preferences and Inseparable Probability and Utility},
  author={Robert F. Nau},
  journal={Management Science},
  year={2003},
  volume={49},
  pages={1089-1104}
}
The Pratt-Arrow measure of local risk aversion is generalized for the n-dimensional state-preference model of choice under uncertainty in which the decision maker may have inseparable subjective probabilities and utilities, unobservable stochastic prior wealth, and/or smooth nonexpected-utility preferences. Local risk aversion is measured by the matrix of derivatives of the decision maker’s risk-neutral probabilities, without reference to true subjective probabilities or riskless wealth… CONTINUE READING
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