Burr Utility

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

Research output: Working paperDiscussion paperOther research output

272 Downloads (Pure)

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

Fingerprint

Utility function
Relative risk aversion
Absolute risk aversion
Probability distribution
Exponential utility

Keywords

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

Cite this

Ikefuji, M., Laeven, R. J. A., Magnus, J. R., & Muris, C. H. M. (2010). Burr Utility. (CentER Discussion Paper; Vol. 2010-81). Tilburg: Econometrics.
Ikefuji, M. ; Laeven, R.J.A. ; Magnus, J.R. ; Muris, C.H.M. / Burr Utility. Tilburg : Econometrics, 2010. (CentER Discussion Paper).
@techreport{fddee215edea4800ba72d1848113d888,
title = "Burr Utility",
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.",
keywords = "Cardinal scale, Utility function, Harmonic absolute risk aversion (HARA), Exponential utility, Power utility",
author = "M. Ikefuji and R.J.A. Laeven and J.R. Magnus and C.H.M. Muris",
note = "Pagination: 14",
year = "2010",
language = "English",
volume = "2010-81",
series = "CentER Discussion Paper",
publisher = "Econometrics",
type = "WorkingPaper",
institution = "Econometrics",

}

Ikefuji, M, Laeven, RJA, Magnus, JR & Muris, CHM 2010 'Burr Utility' CentER Discussion Paper, vol. 2010-81, Econometrics, Tilburg.

Burr Utility. / Ikefuji, M.; Laeven, R.J.A.; Magnus, J.R.; Muris, C.H.M.

Tilburg : Econometrics, 2010. (CentER Discussion Paper; Vol. 2010-81).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Burr Utility

AU - Ikefuji, M.

AU - Laeven, R.J.A.

AU - Magnus, J.R.

AU - Muris, C.H.M.

N1 - Pagination: 14

PY - 2010

Y1 - 2010

N2 - 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.

AB - 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.

KW - Cardinal scale

KW - Utility function

KW - Harmonic absolute risk aversion (HARA)

KW - Exponential utility

KW - Power utility

M3 - Discussion paper

VL - 2010-81

T3 - CentER Discussion Paper

BT - Burr Utility

PB - Econometrics

CY - Tilburg

ER -

Ikefuji M, Laeven RJA, Magnus JR, Muris CHM. Burr Utility. Tilburg: Econometrics. 2010. (CentER Discussion Paper).