On the nature of financial leverage
AbstractThe article presents a translation of some widespread financial terminology into the language of decision theory. For instance, financial leverage can be regarded as an object of choice or a decision. We show how the optics of decision theory allows perceiving the recently introduced metrics of see-through-leverage, which proved to be very useful in understanding the phenomenology of the recent economic crisis. The importance for practical decision making of specification of the statistical regularity of the random phenomena at hand as well as of the rationality class of the decision maker is discussed.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1009.2896.
Date of creation: Sep 2010
Date of revision: Jun 2012
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-25 (All new papers)
- NEP-BAN-2010-09-25 (Banking)
- NEP-HPE-2010-09-25 (History & Philosophy of Economics)
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