# Questions tagged [risk]

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### Risky Assets over Bernoulli Utility

My question is about 6.C.4. of Mas-Colell et.al.'s Microeconomic Theory book. We have N risky assets with returns $z_n, n = (1,...,N)$ per dollar invested which are distributed over $F(z_1,...,z_n).$ ...
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### Independence axiom of lottery when $\alpha \ge 1$

When studying preference over lotteries we learned the independence axiom which goes like this: The preference relation $\succsim$ on the space of simple lotteries $\mathscr{L}$ satisfies the ...
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### How do governments deflect risk through greater volatility in the housing market?

Source: p 123 of 296, Understanding Housing Policy, by Brian Lund Although housing immobility limits the impact of globalisation, its influence on financial and labour markets magnifies ...
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### Perfect risk sharing in Arrow-Debreu w/ the same subjective beliefs over states

So I'm looking at a 2-agent Arrow-Debreu economy with one good. Consumption and endowments are zero in t=0, and 2 states are possible in t=1 with aggregate endowment in both states equal to 1. We ...
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### Relative risk aversion and lotteries exercise

Given a consumer with a utility function, $u(w)$, and a wealth of $w>1000$. Assuming that the consumers relative risk aversion is constant and equal to 1, that is $R_r(w)=1$ for $w>0$, the ...
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### Probability of states of nature

I've been given the following question and would really appreciate any help on part a. I've looked over all of my resources for this course and we have always been given the probability of the ...
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### What is the necessity of the FDIC in the US banking system?

A bank's basic function is to "borrow short and lend long". In other words, it borrows money from depositors over the short term, promising to repay it on demand, while it lends most of that money out ...
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### How to evaluate if an activity is likely to produce a positive ROI?

I am trying to establish if it would be worth my while to sell a product in a particular online marketplace but am unsure how to evaluate if it would be financially worth my while. The marketplace in ...
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### What metrics would indicate a house bubble rather than genuine market values?

There are concerns that Auckland, New Zealand, is currently experiencing a housing bubble. Auckland is one of the top 10 cities in the world on a housing unaffordability index. The question is - ...
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### What can we conclude from the overdetermined equity premium puzzle?

The equity premium: A puzzle (Mehra and Prescott (1985)) lays out the basic problem with equity returns: Restrictions that a class of general equilibrium models place upon the average returns of ...
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### Question about constant relative risk aversion

The question: Consider a person with constant relative risk aversion $p$. (a) Suppose the person has wealth of $100,000$ and faces a gamble in which he wins or loses $x$ with equal probabilities. ...
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### Multiplicative factorization of stochastic growth time series--solving for an eigenfunction/eigenvector

I'm trying to understand the tools used/presented in Lars Hansen's Econometrica paper "Dynamic Valuation Decomposition within Stochastic Economies." In a part in the paper, Hansen introduces a long-...
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### What are alternative measures of risk?

In finance, the variance of the returns of a security are used as a proxy for the associated risk of the security. I've seen some books include sentences like "if you take variance as a measure of ...
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### Definition of Absolute Risk Aversion

In its Wikipedia article, absolute risk aversion is defined as $ARA = -\frac{u''(c)}{u'(c)}$. However, I have alternatively seen absolute risk aversion defined as half the decrease in consumption ...
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### What are the economic justifications of the size premium?

What are the economic justifications of the size premium? In factor pricing models like the intertemportal capital asset pricing model (I-CAPM) or arbitrage pricing theory (APT), it is assumed that ...
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### Portfolio choice of a risk lover

Take the standard portfolio choice problem as presented in MWG (p.188-189), but with a risk loving decision maker: with initial wealth $w$ invests an amount $\alpha$ in a risky asset with a random ...
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### Absolute vs Relative Risk Aversion

Are there results that says the monotonicity of one measure of risk aversion implies the monotonicity of the other measure? For example, Does constant relative risk aversion imply decreasing ...