Question: Answer...... Exercise 5. Let u be a twice differentable utility function on (0, co). 1. The Pratt-Arrow absolute risk aversion function A : (0, co)

Answer......

Exercise 5. Let u be a twice differentable utility function on (0, co). 1. The Pratt-Arrow absolute risk aversion function A : (0, co) is a constant positive function if and only if 1 - e-Rx u(x) = R for some R > 0 2. The Pratt-Arrow relative riskaversion function R is a positive constant function if and only if ur) = al-y - 1 ,x20 1 -y

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