Isoelastic Utility

Isoelastic utility is a type of utility function in economics and finance that exhibits constant relative risk aversion (CRRA). It describes how individuals' utility, or satisfaction, changes with different levels of wealth or consumption, maintaining a consistent level of risk aversion regardless of wealth. The isoelastic utility function is often used in portfolio theory and behavioral economics to model decision-making under uncertainty.

Example

An investor with isoelastic utility preferences will make consistent risk-averse decisions, whether their wealth increases or decreases, as their relative risk aversion remains unchanged.