What Is Constant Absolute Risk Aversion

Constant absolute risk aversion, or CARA, utility is a class of utility functions. Also called exponential utility. Has the form, for some positive constant a: u(c)-(1/a)e-ac Under this specification the elasticity of marginal utility is equal to -ac, and the instantaneous elasticity of substitution is equal to 1/ac. The coefficient of absolute risk aversion is a; thus the abbreviation CARA for Constant Absolute Risk Aversion. Constant absolute risk aversion is usually thought of as a less plausible description of risk aversion than constant relative risk aversion (thats the CRRA), but it can be more analytically convenient. (Econterms) Terms related to Constant Absolute Risk Aversion (CARA): CRRA About.Com Resources on Constant Absolute Risk Aversion (CARA):None Writing a Term Paper? Here are a few starting points for research on Constant Absolute Risk Aversion (CARA): Books on Constant Absolute Risk Aversion (CARA):None Journal Articles on Constant Absolute Risk Aversion (CARA):None Return to Main Page