A Simple Metric for Gauging Risk Aversion

The underlying rationale for insurance purchases and other forms of risk management is aversion to risk, yet the measurement of risk aversion has been inappropriately focused on risks of little or no consequence. The present paper demonstrates that a quantitative measure of large-scale risk aversion can be constructed with elementary mathematics, facilitating the solution of numerical problems. We illustrate its use with hypothetical examples and empirical survey data.