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# Tag Info

## Hot answers tagged risk

8 votes
Accepted

### Second order stochastic dominance

The answer to 2. is no. One way to see this is from MWG's Property 6.D.2: $F$ SOSD $G$ if and only if \int_0^xF(t)\mathrm dt \le \int_0^xG(t)\mathrm dt \quad\text{for all }x. \end{...
• 15.5k
7 votes

### Why is everyone suggested to specialize their education?

Note: I did not vote down on this question, and it is not clear why anyone would do so. Why is so common to suggest university students to specialize in order to get a better paid job? Because ...
• 1,827
7 votes

### Second order stochastic dominance

The answer to 1. Your conjecture is correct. Consider lotteries $A,B$ where $A$ guarantues a payoff of 1 while $B$ yields 0 or 4, each with 50% probability. $B$ does not SOSD $A$, as you can easily ...
• 29.4k
6 votes

### Most utility functions under risk and uncertainty generalizes expected utility. What is deadly wrong if a model does not include EU as special case?

Many people accept the axiomatizations of expected utility as normatively appealing, especially in contexts of pure risk. For people with this view, rational decision-makers should behave in ...
• 13.4k
5 votes
Accepted

• 1,323
4 votes
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• 12.5k
3 votes
Accepted

### Bond Price expression

If $\delta > 0$ is very small, then the interest incurred during the small subperiod $[t, t + \delta]$ can be approximated using the simple interest formula. More specifically, the interest ...
• 480
3 votes

### Negative certainty equivalent

I mispoke in the comments, this certainty equivalent should indeed not be negative. The certainty equivalent in your example is $w_0+c$, this certain payoff's utility is equivalent with the lottery's....
• 29.4k
3 votes
Accepted

### Why does Central Bank Digital Currency affect commercial banks' retail deposits?

Because they are substitutes and they compete with each other. The more substitutes there are for a product the lower the market power of a producer of that product. Today if you want to buy anything ...
• 2,734
3 votes

### What was the original paper that showed that estimates of risk aversion from micro and macro are inconsistent?

The literature was initially quite pessimistic about the possibility to consistently estimate risk-aversion parameters consistently (and more generally all models' parameters), as highlighted by ...
• 3,371
3 votes
Accepted

### What was the original paper that showed that estimates of risk aversion from micro and macro are inconsistent?

In an extremely influential paper, Mehra and Prescott (the reference is below) showed that in order to explain the premium of stocks over treasury bonds in a parametric general equilibrium model, one ...
• 13.4k
2 votes
Accepted

### Swaps and systemic risk

A standard ("vanilla") interest rate swap is a contract in which one party pays a fixed rate of interest, and the other pays a floating rate (typically LiBOR, but it depends upon the market convention ...
• 9,907
2 votes

### Are risk-costs a form of external costs?

In the particular case of nuclear power plants, yes, the risk cost can be considered as a negative externality. That's because nuclear power plant operators are explicitly limited by law in their ...
• 8,168
2 votes
Accepted

### Consequentialist View of Risk

This assumption is usually considered as reasonable from a normative perspective. For instance, consider the following situations: in situation A, you face an urn with 5 blue balls and 5 red balls. A ...
• 3,252
2 votes

### VaR and rating for commercial banks

I restrict myself to credit rating for Banks only. There are different solutions, in bold are my preferred one. To have just an idea about single banks register a free user account to rating ...
• 51

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