Risk Aversion Features
This and only this utility function has the feature of constant relative risk aversion. Mathematically this means that is a constant, specifically . In theoretical models this often has the implication that decision-making is unaffected by scale. For instance, in the standard model of one risk-free asset and one risky asset, under constant relative risk aversion the fraction of wealth optimally placed in the risky asset is independent of the level of initial wealth.
Read more about this topic: Isoelastic Utility
Famous quotes containing the words risk, aversion and/or features:
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—François, Duc De La Rochefoucauld (1613–1680)
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—Christopher Lasch (b. 1932)