Journal ArticleDOI
The Efficiency Analysis of Choices Involving Risk
Giora Hanoch,Haim Levy +1 more
TLDR
In this paper, an analysis of the first step of the decision-making process of an individual decision maker among alternative risky ventures is presented, in terms of a single dimension such as money, both for the utility functions and for the probability distributions.Abstract:
Publisher Summary The choice of an individual decision maker among alternative risky ventures may be regarded as a two-step procedure. The decision maker chooses an efficient set among all available portfolios, independently of his tastes or preferences. Then, the decision maker applies individual preferences to this set to choose the desired portfolio. The subject of this chapter is the analysis of the first step. It deals with optimal selection rules that minimize the efficient set by discarding any portfolio that is inefficient in the sense that it is inferior to a member of the efficient set, from point of view of each and every individual, when all individuals' utility functions are assumed to be of a given general class of admissible functions. The analysis presented in the chapter is carried out in terms of a single dimension such as money, both for the utility functions and for the probability distributions. However, the results may easily be extended, with minor changes in the theorems and the proofs, to the multivariate case. The chapter explains a necessary and sufficient condition for efficiency, when no further restrictions are imposed on the utility functions. It presents proofs of the optimal efficiency criterion in the presence of general risk aversion, that is, for concave utility functions.read more
Citations
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Journal ArticleDOI
Deductible insurance and production
TL;DR: In this article, the authors show that a fair deductible insurance will induce all risk averse firms to increase their output, and that the smaller the deductible, the larger the increase in output.
Dissertation
Applying stochastic programming models in financial risk management
TL;DR: In this paper, a stochastic dominance concept is applied to control the risk of underfunding in a back office of a bank specialising in the trading of derivative products, which relies on the well known Aggregate Planning Model.
Journal ArticleDOI
The maximum-return-and-minimum-volatility effect: evidence from choosing risky and riskless assets to form a portfolio
TL;DR: In this article, the authors examine the conjecture of whether investors should choose an asset with the highest expected return and the smallest variance even when the mean-variance rule says “NO”.
Journal ArticleDOI
Terrorist choice: a stochastic dominance and prospect theory analysis
Peter J. Phillips,Gabriela Pohl +1 more
TL;DR: In this paper, the authors explored terrorist choice by applying stochastic dominance and prospect theory (PT) to analyze each pair of attack methods that can be formed from the RAND-MIPT database and the Global Terrorism Database.
Book ChapterDOI
The Theory of Risk and Risk Aversion
TL;DR: In this paper, the authors reviewed and summarized the definitions and related findings concerning risk aversion and risk in both a mean-variance and an expected utility decision model context, and proposed a framework for modeling risk and risk aversion.
References
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Journal ArticleDOI
Capital asset prices: a theory of market equilibrium under conditions of risk*
TL;DR: In this paper, the authors present a body of positive microeconomic theory dealing with conditions of risk, which can be used to predict the behavior of capital marcets under certain conditions.
Journal ArticleDOI
The Utility Analysis of Choices Involving Risk
TL;DR: In this paper, the authors suggest that an important class of reactions of individuals to risk can be rationalized by a rather simple extension of orthodox utility analysis, i.e., individuals frequently must, or can, choose among alternatives that differ, among other things, in the degree of risk to which the individual will be subject.
Journal ArticleDOI
The Existence of Probability Measures with Given Marginals
TL;DR: In this article, the existence of probability distributions with given marginals is studied under typically weaker assumptions, than those which are required by the use of Theorem 1, and necessary and sufficient conditions for a sequence of probability measures to be the sequence of distributions of a martingale, an upper semi-martingale or of partial sums of independent random variables.