Abstract
In this paper we compare the two basic risk preference measures suggested independently by John W. Pratt (1964) and Kenneth J. Arrow (1965) as to their impact on simple production decisions with uncertain economic outcomes. We develop a further related concept by introducing a risk aversion leverage measuring the dependence of absolute risk aversion on wealth.We also discover a remarkable approximate relation between risk aversion measures of different leverages making the corresponding risk preference functions similar and leading to a method for estimating different Certainty Monetary Equivalents using zero-leverage expressions.We concentrate on three simple cases of production decisions of the Newsboy type.
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
