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Compute utility function that corresponds to a constant

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Reference no: EM1331619

CARA: vNM utility with constant absolute risk aversion

This is a classic graduate/advanced undergraduate level problem in microeconomics/finance. It asks to calculate utility function that corresponds to a constant Arrow-Pratt measure of absolute risk-aversion.

Here's a problem from Mas-Colell, Whinston and Green textbook on Microeconomic Theory:

Given that the Arrow-Pratt measure of absolute risk-aversion is a constant, derive the corresponding form of the von Neumann-Morgenstern utility function.

 

Reference no: EM1331619

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