Expo‐Power Utility: A ‘Flexible’ Form for Absolute and Relative Risk Aversion

A new utility function, which I call expo‐power, is proposed that exhibits decreasing, constant, or increasing absolute risk aversion and decreasing or increasing relative risk aversion, depending on parameter values. Numerical analysis suggests that the expo‐power function performs well in incorporating these risk preference structures, and that arbitrary risk preference specifications may lead to biased risk response estimates.