Information on this is not specific to Arnold, but in order to correctly display the linear renders of Arnold in your monitor's colorspace, you need to set up the color management in Houdini in the menu Edit > Color Settings... > Color Correction.

Color Management can be set in the System tab of the Arnold Render Output in Arnold 5.

Linear Workflow

Gamma correction controls are helpful for users to make sure they are working in radiometrically linear space (also called 'linear workflow'). Linear workflow ensures that all of the elements interacting in a scene (light colors, textures, and shader colors) correspond linearly with actual amounts of light so that the renderer does proper light computations in a physically accurate way. This is needed since light works linearly in the physical world (if you double the amount of photons, the color values are also doubled).

While all the calculations need to happen in a linear color space, all viewing devices (input and output) will need to be shown in a gamma-corrected space (like sRGB gamma).

The main problem when rendering without a proper linear workflow is that lights look overblown and colors look unnatural. The artist then tries to adjust their scene's lighting, falloff, colors, etc. However, this is only possible to a certain extent. The images below show common mistakes artists make when rendering out images with differing gamma outputs:

It is recommended that you output rendered images as EXR (linear floating-point format) in order to maintain a linear workflow. 

The rendering pipeline can be broken down into the following steps:

How to make inputs linearly

Images rendered to disk need to be viewed with a LUT capable image viewer. When viewed through a standard non LUT capable viewer, the rendered images will look too dark in comparison.

Tx Texture Format

You can convert your textures to linear space with the make tx tool. This way you can ensure that all of your textures are linear before rendering. You can choose between linear, sRGB, and Rec709. For example, the following command:

maketx --colorconvert sRGB linear C:\crayons.jpg

Crayons.jpg image color space converted using the make tx tool

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