The monetary utility premium and interpersonal comparisons

The utility premium is generally defined as the pain or reduction in expected utility caused by an n$n$th-degree risk increase, where n≥2$n\ge 2$. While it is a very useful concept in understanding a decision maker’s choice in uncertain situations, the utility premium is not interpersonally comparable. This note shows that the monetary utility premium–the utility premium divided by the expected marginal utility at the random starting wealth–is interpersonally comparable, and the comparison is characterized by Ross more risk aversion of the corresponding degree.