Abstract
Since Pratt (1964) and Arrow (1971) presented the concept of risk aversion, many have attempted to calculate the “true” coefficient of risk aversion in the economy and have questioned how this measure reacts to changes in wealth and markets. Studies have proposed that risk aversion is constant, increasing, decreasing, and even U-shaped, across levels of wealth. This paper gives an overview of many studies that have extracted implied risk aversion measures from economic data and examines their assumptions and results. In addition, a simple model to compute risk aversion is presented, and the results are related to the level of the Standard & Poor’s (S&P) 500.