How is absolute risk aversion function defined
How is absolute risk aversion function defined?
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The last point, in the above leads to definitions for measurement of risk aversion. The absolute risk aversion function is defined as
A(W) = - (U’’(W))/(U’(W))
The relative risk aversion function is defined as
R (W) =- (WU’’ (W))/ (U’ (W)) = WA (W)
Utility functions are frequently used to analyse random events.
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