Document Type
Discussion Paper
Publication Date
2-1-1988
CFDP Number
859
CFDP Pages
10
Abstract
This note examines the effect of changes in risk aversion on the optimal portfolio choice in a complete market. It is shown that an agent who is less risk averse in the Pratt (1964) sense than another will choose a portfolio whose payoff is distributed as the other’s payoff plus a nonnegative random variable plus conditional-mean-zero noise. The proof of the result uses simple first order conditions and basic results from stochastic dominance.
Recommended Citation
Dybvig, Philip H., "Increases in Risk Aversion and Portfolio Choice in a Complete Market" (1988). Cowles Foundation Discussion Papers. 1102.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1102