These notes summarize useful concepts for analyzing attitude toward risk taking in decision analysis. The exponential utility function is emphasized, and conditions are reviewed under which this utility function form is appropriate. Tables are presented that aid in using the exponential utility function, including finding the value of the risk tolerance. The use of the exponential utility function is considered in analyzing portfolio decisions and determining the value of perfect information. The accuracy is considered of an approximate formula for determining certainty equivalents when the exponential utility function holds. Exercises on this material are also included.

The
*
Notes
*
are available in either TeX DVI format or Adobe Portable
Document Format (PDF), and the DVI file is much smaller.

**
TeX DVI format:
**
*
*
The
*
Notes
*
in TeX DVI format are
in a ZIP archive
risk.zip
(83,213 bytes).
This contains the
*
Notes
*
in TeX
DVI format, and this document will print or display using any TeX printer or
display driver.

**
Adobe PDF format:
**
Download
risk.pdf
(182,392 bytes) and display or print using
Adobe Acrobat Reader. Acrobat Reader are available free from
Adobe Systems Incorporated
. (Right-click on the
link to risk.pdf to download it rather than display it in your web
browser.)
**
Note:
When you print from Acrobat Reader,
uncheck the option “Fit to page” on the Print dialog to increase
the size of
the printed type.
**

Return to

*
Last updated November 11, 2017.
*