Capturing Intrinsic Risk Attitude

The paper introduces a new concept of intrinsic risk attitude. In contrast to the common Arrow-Pratt measure, the present concept is directly tied to preferences on the multidimensional consumption space and is independent of the way we measure consumption, of the commodity under observation, and of market prices or liquidity constraints. The measure relies on intertemporal choice to distinguish intrinsic aversion to risk from deterministic preference characteristics such as taste or satiation. The paper complements this concept of intertemporal risk aversion with a new definition of “more risk averse” based on carefully constructing comparable lotteries for agents with differing taste.