Spectral risk measures (SRMs) are risk measures that take account of user
riskaversion, but to date there has been little guidance on the choice of
utility function underlying them. This paper addresses this issue by examining
alternative approaches based on exponential and power utility functions. A
number of problems are identified with both types of spectral risk measure. The
general lesson is that users of spectral risk measures must be careful to
select utility functions that fit the features of the particular problems they
are dealing with, and should be especially careful when using power SRMs.