might lead to seemingly U-shaped relative risk aversion for a representative investor, as found empirically by Ait …-Sahilia and Lo (2000) and Jackwerth (2000). -- Portfolio choice ; Derived relative risk aversion ; Additive background risk … ; Multiplicative background risk …

We examine asset prices in a representative-agent model of general equilibrium. Assuming only that individuals are risk … averse, we determine conditions on the changes in asset risk that are both necessary and sufficient for the asset price to … incomplete in the sense of containing an uninsurable background risk, such as a risk on labor income. We extend our model to show …

Although risk aversion has been used in economic models for over 275 years, the past few decades have shown how higher … order risk attitudes are also quite important. A behavioral approach to defining such risk attitudes was developed by … lattices can be extended in order to develop a better understanding of higher order risk attitudes. …

How does risk affect saving? Empirical work typically examines the effects of detectible differences in risk within the … data. How these differences affect saving in theoretical models depends on the metric one uses for risk. For labor …-income risk, second-degree increases in risk require prudence to induce increased saving demand. However, prudence is not …