Decision principles derived from risk measures

M.J. Goovaerts, R. Kaas, R.J.A. Laeven

Research output: Contribution to journalArticleScientificpeer-review

Abstract

In this paper, we argue that a distinction exists between risk measures and decision principles. Though both are functionals assigning a real number to a random variable, we think there is a hierarchy between the two concepts. Risk measures operate on the first "level", quantifying the risk in the situation under consideration, while decision principles operate on the second "level", often being derived from the risk measure. We illustrate this distinction with several canonical examples of economic situations encountered in insurance and finance.

Special attention is paid to the role of axiomatic characterizations in determining risk measures and decision principles. Some new axiomatic characterizations of families of risk measures and decision principles are also presented.
Original languageEnglish
Pages (from-to)294-302
JournalInsurance: Mathematics & Economics
Volume47
Issue number3
Publication statusPublished - 2010

    Fingerprint

Cite this

Goovaerts, M. J., Kaas, R., & Laeven, R. J. A. (2010). Decision principles derived from risk measures. Insurance: Mathematics & Economics, 47(3), 294-302.