Choices Under Risk

Emilio Barucci and Claudio Fontana
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Emilio Barucci: Politecnico di Milano
Claudio Fontana: Université Paris Diderot (Paris 7)

Chapter Chapter 2 in Financial Markets Theory, 2017, pp 15-54 from Springer

Abstract: Abstract This chapter presents the foundations of decision making problems in a risky environment. By introducing suitable axioms on the preference relation, the existence of an expected utility function representation is proved. We discuss the notions of risk aversion, risk premium and certainty equivalent and characterize stochastic dominance criteria for comparing random variables. The chapter ends with a discussion of mean-variance preferences and their relation with stochastic dominance and expected utility.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprfcp:978-1-4471-7322-9_2

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DOI: 10.1007/978-1-4471-7322-9_2

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