In economics, an index of absolute risk aversion is defined as

where M measures how much of a commodity is owned and U(M) is a utility function, which measures the ability of quantity M of a commodity to satisfy a consumer’s wants. Find I(M) for U(M) = √M and for U(M) = M^2/3, and determine which indicates a greater aversion to risk.

Transcribed Image Text:

I(M) = -U" (M) U' (M)