Econometrica: Mar, 1977, Volume 45, Issue 2

Risk Aversion and Consumer Preferences

https://doi.org/0012-9682(197703)45:2<413:RAACP>2.0.CO;2-E
p. 413-426

Giora Hanoch

The first part of this article integrates the concept of (relative) risk aversion with respect to income (r) with the static analysis of demand for many commodities. Alternative representations of preferences and demand functions, using duality, give rise to many alternative representations of r, and to theorems regarding attitudes towards risk in bundles of quantities and in prices. In the second part, a previous analysis by Deschamps is corrected and completed by specifying the general form of preferences and demands such that r is a function of the utility level only, independent of relative prices. Finally, preferences and demand functions associated with constant r (previously analyzed by Stiglitz and Deschamps) are specified more explicitly and completely. A general conclusion emerging is that demand behavior under uncertainty can hardly throw any light on the nature of attitudes towards risk.