At the moment I am trying to judge the validity of a model assuming a CARA-Utility-Function. And I vaguely remember that experimental results usually suggest decreasing absolute risk aversion.
Unfortunately I cannot find any literature on estimations of risk-aversion and its behavior when stakes get higher at all.
Are there papers like this?
Thanks for your help!
Michael
There is NO empirical support for assuming constant absolute risk aversion.
My book shows it and examines alternatives, concluding that risk aversion should be a function of the distance between the personal gains and the average in the society.
http://www.amazon.com/S-shaped-Utility-Functions-Puzzles-Financial/dp/3838383168
This is an entire area of psychology (behavioral decision theory) addressing related issues. A start would be Tversky, Kahneman, and Slovic's edited book or Frank Yates edited book (cite in attached paper).
Joao is absolutely right. The evidence is that people do not even have consistent risk preferences across areas and apparent risk preferences vary with many things (particularly with whether the outcomes are viewed as positive or negative), let alone constant absolute risk aversion.
Looking at some of the early works Pratt and Arrow may help.
Check out these papers:
by http://www.jstor.org/discover/10.2307/40987816?sid=21104971668511&uid=2&uid=3739584&uid=3739256&uid=4
http://users.nber.org/~rosenbla/econ311-04/syllabus/holtlaury.pdf
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