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On the Risk–Downside Risk Tradeoff
Author(s) -
Menezes Carmen F.,
Wang X. Henry
Publication year - 2004
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2004.00387.x
Subject(s) - downside risk , economics , relevance (law) , variety (cybernetics) , risk analysis (engineering) , actuarial science , financial economics , computer science , business , portfolio , artificial intelligence , political science , law
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.