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Explaining the characteristics of the power (CRRA) utility family
1Econometric Institute, Erasmus University Rotterdam, Rotterdam, The Netherlands. Wakker@few.eur.nl
Health Economics
|January 24, 2008
Abstract:
The power family, also known as the family of constant relative risk aversion (CRRA), is the most widely used parametric family for fitting utility functions to data. Its characteristics have, however, been little understood, and have led to numerous misunderstandings. This paper explains these characteristics in a manner accessible to a wide audience.
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