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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

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.

Suggested Citation

  • Chamorro Elosua, Arritokieta & Usategui Díaz de Otalora, José María, 2013. "A Note on Risk Acceptance, Bankruptcy Avoidance and Riskiness Measures," DFAEII Working Papers DFAEII;2013-04, University of the Basque Country - Department of Foundations of Economic Analysis II.
  • Handle: RePEc:ehu:dfaeii:10739
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    File URL: https://addi.ehu.es/handle/10810/10739
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    References listed on IDEAS

    as
    1. Hellmann, Tobias & Riedel, Frank, 2015. "The Foster-Hart measure of riskiness for general gambles," Theoretical Economics, Econometric Society.
    2. Robert J. Aumann & Roberto Serrano, 2008. "An Economic Index of Riskiness," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 810-836, October.
    3. Sergiu Hart, 2011. "Comparing Risks by Acceptance and Rejection," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 617-638.
    4. Turan G. Bali & Nusret Cakici & Fousseni Chabi-Yo, 2011. "A Generalized Measure of Riskiness," Management Science, INFORMS, vol. 57(8), pages 1406-1423, August.
    5. Hart, Sergiu & Foster, Dean P., 2013. "A wealth-requirement axiomatization of riskiness," Theoretical Economics, Econometric Society.
    6. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    riskiness measure; objective measures; risk acceptance;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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