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Consistent Risk Acceptance Criteria through Networks

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  • Cerqueti, Roy
  • Lupi, Claudio

Abstract

In decision theory projects are usually evaluated in terms of their riskiness, and often decision under risk is intended as the one-shot-type binary choice of accepting or not accepting the risk. This paper elaborates on the concept of risk acceptance, and aims at developing a theoretical framework based on networks theory. In doing this, the interconnections between the random quantities involved in the decision are taken into account. The conditions to be satisfied in order for the risk-acceptance criterion to be consistent with the axiomatization of standard expected utility theory are also explored. In accordance with existing literature, we obtain that a risk evaluation problem can be meaningful even if it is not consistent with the standard axiomatization of expected utility. Some illustrative examples are also provided.

Suggested Citation

  • Cerqueti, Roy & Lupi, Claudio, 2015. "Consistent Risk Acceptance Criteria through Networks," Economics & Statistics Discussion Papers esdp15076, University of Molise, Department of Economics.
    • Handle: RePEc:mol:ecsdps:esdp15076
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Risk acceptance; networks; decision theory; expected utility; insurance;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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