Burr Utility

M. Ikefuji, R.J.A. Laeven, J.R. Magnus, C.H.M. Muris

Research output: Working paperDiscussion paperOther research output

Abstract

This note proposes the Burr utility function. Burr utility is a flexible two-parameter family that behaves approximately power-like (CRRA) remote from the origin, while exhibiting exponential-like (CARA) features near the origin. It thus avoids the extreme behavior of the power family near the origin. We show how to characterize Burr utility as a special case in the general class of utility functions with non-increasing and convex absolute risk aversion, and non-decreasing and concave relative risk aversion. We further show its connection to the Burr probability distribution. A related class of generalized exponential utility functions is also studied.
Original languageEnglish
Place of PublicationTilburg
PublisherEconometrics
Number of pages14
Volume2010-81
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper
Volume2010-81

Keywords

  • Cardinal scale
  • Utility function
  • Harmonic absolute risk aversion (HARA)
  • Exponential utility
  • Power utility

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