OPTIMAL DECISIONS WITH LINEAR RANDOM PAYOFF*
In: The Manchester School, Band 74, Heft 3, S. 251-265
ISSN: 1467-9957
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In: The Manchester School, Band 74, Heft 3, S. 251-265
ISSN: 1467-9957
In: The Manchester School, Band 72, Heft 2, S. 179-187
ISSN: 1467-9957
In the last decade the literature has established the empirical importance of the tradeoff between risk and downside risk in a variety of economic settings. While the notions of risk and downside risk have been generalized in the theoretical literature, the literature has yet to provide a choice‐theoretic characterization of their tradeoff. This paper provides an analytical characterization of the risk–downside risk tradeoff and shows its relevance in the analysis of optimal decisions under uncertainty, such as the precautionary savings decision.