An analysis of risky financial decisions

A. Mehrez; U. Regev; A. Spivak

doi:10.1002/mde.4090050105

An analysis of risky financial decisions

A. Mehrez, U. Regev, A. Spivak

Department of Economics

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

A problem of financing uncertain cost of a project is investigated. The paper analyses the allocation and the loss due to the cost uncertainty. Different formulations of the problem are suggested and compared: expected profits, chance constraint maximization and a utility approach. It is shown that even a risk‐neutral manager is willing to pay a premium to reduce uncertainty. The two approaches to risk, chance constraint versus concave utility, are shown to be non‐equivalent.

Original language	English
Pages (from-to)	19-24
Number of pages	6
Journal	Managerial and Decision Economics
Volume	5
Issue number	1
DOIs	https://doi.org/10.1002/mde.4090050105
State	Published - 1 Jan 1984

ASJC Scopus subject areas

Business and International Management
Strategy and Management
Management Science and Operations Research
Management of Technology and Innovation

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10.1002/mde.4090050105

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AB - A problem of financing uncertain cost of a project is investigated. The paper analyses the allocation and the loss due to the cost uncertainty. Different formulations of the problem are suggested and compared: expected profits, chance constraint maximization and a utility approach. It is shown that even a risk‐neutral manager is willing to pay a premium to reduce uncertainty. The two approaches to risk, chance constraint versus concave utility, are shown to be non‐equivalent.

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An analysis of risky financial decisions

Abstract

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