Risk aversion under preference uncertainty

  • We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this result for asset allocation: poor agents that are uncertain about their risk aversion parameter invest less in risky assets than wealthy investors with identical risk aversion uncertainty. Keywords: Risk Aversion , Preference Uncertainty , Risk-taking , Asset Allocation JEL Classification: D81, D84, G11 This Version: November 25, 2010

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Author:Roman KräusslORCiDGND, André Lucas, Arjen Siegmann
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2010,24
Series (Serial Number):CFS working paper series (2010, 24)
Document Type:Working Paper
Year of Completion:2010
Year of first Publication:2010
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2010/12/15
Tag:Asset Allocation; Preference Uncertainty; Risk Aversion; Risk-taking
GND Keyword:Nutzenfunktion; Risikoaversion; Portfolio Selection
Issue:25 November 2010
Page Number:14
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht