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A Note on Risk Acceptance, Bankruptcy Avoidance and Riskiness Measures

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  • Chamorro Elosua, Arritokieta
  • Usategui Díaz de Otalora, José María
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    Abstract

    In this work we clarify the relationships between riskiness, risk acceptance and bankruptcy avoidance. We distinguish between the restriction on the current wealth required to make a gamble acceptable to the decision maker and the restriction on the current wealth required to guarantee no bankruptcy if a gamble is accepted. We focus on the measure of riskiness proposed by Foster and Hart.

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    File URL: https://addi.ehu.es/bitstream/10810/10739/1/wp2013-04.pdf
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    Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number DFAEII;2013-04.

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    Handle: RePEc:ehu:dfaeii:10739

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    Postal: Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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    Keywords: riskiness measure; objective measures; risk acceptance;

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    1. Sergiu Hart, 2010. "Comparing Risks by Acceptance and Rejection," Discussion Paper Series, The Center for the Study of Rationality, Hebrew University, Jerusalem dp531, The Center for the Study of Rationality, Hebrew University, Jerusalem.
    2. Turan G. Bali & Nusret Cakici & Fousseni Chabi-Yo, 2011. "A Generalized Measure of Riskiness," Management Science, INFORMS, INFORMS, vol. 57(8), pages 1406-1423, August.
    3. Hart, Sergiu & Foster, Dean P., 2013. "A wealth-requirement axiomatization of riskiness," Theoretical Economics, Econometric Society, Econometric Society, vol. 8(2), May.
    4. Robert J. Aumann & Roberto Serrano, 2007. "An economic index of riskiness," Working Papers, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales 2007-08, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
    5. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, Elsevier, vol. 3(1), pages 66-84, March.
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