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Foundations of Risk Measurement. I. Risk As Probable Loss

Author

Listed:
  • Peter C. Fishburn

    (Bell Telephone Laboratories, Inc., Murray Hill, New Jersey 07974)

Abstract

This paper seeks to get behind specific contextual referents of risky situations to consider characteristics of risk that apply to many situations. It is guided by previous theoretical and empirical research in perceived risk, and focuses on the joint effects on risk of loss probability and the distribution of losses. The approach taken follows modern axiomatic theory by proposing conditions on a relation "is at least as risky as" between pairs of probability distributions over an outcome variable. Several sets of axioms for risk that characterize different forms for risk measurement are presented.

Suggested Citation

  • Peter C. Fishburn, 1984. "Foundations of Risk Measurement. I. Risk As Probable Loss," Management Science, INFORMS, vol. 30(4), pages 396-406, April.
  • Handle: RePEc:inm:ormnsc:v:30:y:1984:i:4:p:396-406
    DOI: 10.1287/mnsc.30.4.396
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    File URL: http://dx.doi.org/10.1287/mnsc.30.4.396
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    Keywords

    risk measurement; probability of loss;

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