The ordinal utility under uncertainty and the measure of risk aversion in terms of preferences
type: Item
instance of: scholarly article
title: The ordinal utility under uncertainty and the measure of risk aversion in terms of preferences
zbMATH Open document ID: 0563.90007
DOI: 10.1007/BF00134078
author: Aldo Montesano
published in: Theory and Decision
publication date: 1985-01-01T00:00:00Z
review text: A choice is said to be rational if it follows a criterion, which is usually introduced as a preference model. The von Neumann-Morgenstern theory not only assumes such a rationality but also other axioms with which the neo-Bernoullian utility is connected. Since a preference model can be represented by ordinal utility also in the von Neumann-Morgenstern case, a first analysis concerns the determination in this case of the relationships between the different utility indices of the actions on the one hand and the utilities of their consequences and probabilities on the other. A second analysis concerns the measure of risk aversion, usually given by the Arrow-Pratt index, which is referred to the neo-Bernoullian utility. But a more general measure is necessay if we accept that a preference model can be considered without assuming, for instance, the independence axiom. A new index of risk aversion is proposed in this paper. It requires only the existence of a certainty equivalent for each action. This index turns out to be zero when the von Neumann-Morgenstern axioms hold and its derivative to be proportional to the Arrow-Pratt index. It is also shown that the measure of risk aversion can be positive if the von Neumann-Morgenstern axioms are not all assumed.
Mathematics Subject Classification ID: 91B16
zbMATH DE Number: 3898545
zbMATH Keywords: von Neumann-Morgenstern theory
zbMATH Keywords: measure of risk aversion
zbMATH Keywords: preference model
MaRDI profile type: MaRDI publication profile
cites work: Q3922442
cites work: Q5561637
cites work: Rational Behavior, Uncertain Prospects, and Measurable Utility
cites work: Q5821521
cites work: Q4403954
cites work: Q5826088
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description: scientific article; zbMATH DE number 3898545