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Improving the Risk Concept: A Revision of Arrow-Pratt Theory in the Context of Controlled Dynamic Stochastic Environments

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dc.creator Protopopescu, Dan
dc.date 2008-03-03T17:47:15Z
dc.date 2008-03-03T17:47:15Z
dc.date 2007-12-15
dc.date.accessioned 2017-01-31T01:00:33Z
dc.date.available 2017-01-31T01:00:33Z
dc.identifier http://hdl.handle.net/10261/3137
dc.identifier.uri http://dspace.mediu.edu.my:8181/xmlui/handle/10261/3137
dc.description Submitted for publication to 'The Economic Journal'.
dc.description In the literature on risk, one generally assume that uncertainty is uniformly distributed over the entire working horizon, when the absolute risk-aversion index is negative and constant. From this perspective, the risk is totally exogenous, and thus independent of endogenous risks. The classic procedure is "myopic" with regard to potential changes in the future behavior of the agent due to inherent random fluctuations of the system. The agent's attitude to risk is rigid. Although often criticized, the most widely used hypothesis for the analysis of economic behavior is risk-neutrality. This borderline case must be envisaged with prudence in a dynamic stochastic context. The traditional measures of risk-aversion are generally too weak for making comparisons between risky situations, given the dynamic complexity of the environment. This can be highlighted in concrete problems in finance and insurance, context for which the Arrow-Pratt measures (in the small) give ambiguous results (see Ross, 1981).
dc.description This article is based on research undertaken with support from the European Community's PHARE ACE Programme 1998 under grant P98-2103-S.
dc.description Peer reviewed
dc.format 2093778 bytes
dc.format application/pdf
dc.language eng
dc.relation UFAE and IAE Working Papers
dc.relation 727.08
dc.rights openAccess
dc.subject Controlled dynamic stochastic system
dc.subject Optimal trajectory
dc.subject Closed-loop strategy
dc.subject Feedback-and-forward information
dc.subject Rational decision-maker
dc.subject Dynamic learning
dc.subject Endogenous risk-aversion
dc.subject Adaptive risk management
dc.subject Optimal risk-aversion threshold
dc.subject Excessive risk-averse behavior
dc.subject Risk perception
dc.subject Changing risk behavior
dc.title Improving the Risk Concept: A Revision of Arrow-Pratt Theory in the Context of Controlled Dynamic Stochastic Environments
dc.type Documento de trabajo


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