risk
riskThe fact that the results of any action are not certain, but may take more than one value. Risk is usually used to describe the form of uncertainty where, while the actual outcome of an action is not known, it is expected that it will be determined as the result of a random drawing from a set of possible outcomes whose distribution is known. Where this information is supposed to come from is usually not discussed.
The variance of possible outcomes is frequently used as a measure of risk, but this should not be taken for granted. For some distributions of possible outcomes and some utility functions variance is exactly right as a measure of risk: this applies if the utility function is quadratic, or if the outcomes are normally distributed. For other utility functions and distributions, variance is only an approximate measure of risk, and indeed is not always defined.
Risk-neutrality means that utility is a linear...
[The entire page is 384 words long]
Join eNotes
Over 3,500 study guides, question and answer forums, literature criticism, reference content, and much more!
Oxford University Press Titles
