Foundation 6 utility classes

In economics, the isoelastic function for utility, also known as the isoelastic utility function, or power utility function is used to express utility in terms of consumption or some other economic variable that a decision-maker is concerned with. This and only this utility function has the feature foundation 6 utility classes constant relative risk aversion.

In theoretical models this often has the implication that decision-making is unaffected by scale. For instance, in the standard model of one risk-free asset and one risky asset, under constant relative risk aversion the fraction of wealth optimally placed in the risky asset is independent of the level of initial wealth. Aspects of the Theory of Risk Bearing. Reprinted in: Essays in the Theory of Risk Bearing. Risk aversion in the small and in the large”.

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