A metric (risk aversion) that measures the absolute amount of money or resources an investor is willing to expose to risk in response to an increase or decrease in available money or resources (wealth). Positive (negative) absolute risk aversion means an investor’s tolerance for risk will fall (increase) as his/ her wealth increases (decreases).

Constant absolute risk aversion implies that the amount of resources an investor is willing to expose to risk remains unchanged as wealth changes in either direction.