A STRONG (ROSS) CHARACTERIZATION OF MULTIVARIATE RISK-AVERSION

Using the 'addition of uncorrelated noise' as a natural definition of increasing risk for multivariate lotteries, I interpret risk aversion as the willingness to pay a (possibly random) vector premium in exchan ge for a reduction in multivariate risk. If no restriction is placed o n the sign of any co-ordinate of the vector premium then (as was the c ase in Kihlstrom and Mirman's (1974) analysis) only pairs of expected utility maximizers with the same ordinal preferences for outcomes can be ranked in terms of their aversion to increasing risk. However, if w e restrict the premium to be a non-negative random variable then compa risons of aversion to increasing risk may be possible between expected utility maximizers with distinct ordinal preferences for outcomes. Th e relationship between their utility functions is precisely the multi- dimensional analog of Ross's (1981) global condition for strongly more risk averse.