The two-moment decision model with additive risks

Xu Guo, Andreas Wagener, Wing Keung Wong, Lixing Zhu

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

With multiple additive risks, the mean-variance approach and the expected utility approach of risk preferences are compatible if all attainable distributions belong to the same location-scale family. Under this proviso, we survey existing results on the parallels of the two approaches with respect to risk attitudes, the changes thereof, and the comparative statics for simple, linear choice problems under risks. In mean-variance approach all effects can be couched in terms of the marginal rate of substitution between mean and variance. We provide some simple proofs of some previous results. We apply the theory we stated or developed in our paper to study the behavior of banking firm and study risk-taking behavior with background risk in the mean-variance model.

Original languageEnglish (US)
Pages (from-to)77-94
Number of pages18
JournalRisk Management
Volume20
Issue number1
DOIs
StatePublished - Feb 1 2018

Fingerprint

Decision model
Mean-variance
Risk attitude
Marginal rate of substitution
Banking
Mean-variance model
Comparative statics
Risk-taking behavior
Background risk
Risk preferences
Expected utility

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Cite this

Guo, Xu ; Wagener, Andreas ; Wong, Wing Keung ; Zhu, Lixing. / The two-moment decision model with additive risks. In: Risk Management. 2018 ; Vol. 20, No. 1. pp. 77-94.
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The two-moment decision model with additive risks. / Guo, Xu; Wagener, Andreas; Wong, Wing Keung; Zhu, Lixing.

In: Risk Management, Vol. 20, No. 1, 01.02.2018, p. 77-94.

Research output: Contribution to journalArticle

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