Risk Analysis in Theory and Practice


  • Jean-Paul Chavas, University of Maryland, College Park, USA

The objective of this book is to present this analytical framework and to illustrate how it can be used in the investigation of economic decisions under risk. In a sense, the economics of risk is a difficult subject: it involves understanding human decisions in the absence of perfect information. How do we make decisions when we do not know some of events affecting us? The complexities of our uncertain world and of how humans obtain and process information make this difficult. In spite of these difficulties, much progress has been made. First, probability theory is the corner stone of risk assessment. This allows us to measure risk in a fashion that can be communicated among decision makers or researchers. Second, risk preferences are now better understood. This provides useful insights into the economic rationality of decision making under uncertainty. Third, over the last decades, good insights have been developed about the value of information. This helps better understand the role of information in human decision making and this book provides a systematic treatment of these issues in the context of both private and public decisions under uncertainty.
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Academics and professionals in finance and economics


Book information

  • Published: June 2004
  • ISBN: 978-0-12-170621-0


"Risk is at the very core of most decisions. This text beautifully explores the classical theory of choices under uncertainty including major applications and recent extensions. It combines usefulness, thoroughness, and clarity." Christian Gollier, Professor of Economics, University of Toulouse "Professor Chavas is one of the leading scholars in and premier teachers of applied risk analysis. This masterful book provides a rigorous, accessible and wide ranging treatment of the key concepts and tools. It is a "must read" for anyone seriously interested in the economics of risk, uncertainty and information." Christopher B. Barrett, Professor, Department of Applied Economics and Management, Cornell University

Table of Contents

Table of ContentChapter 1: Introduction Chapter 2: The Measurement of Risk Chapter 3: The Expected Utility ModelChapter 4: Risk PreferencesChapter 5: Stochastic DominanceChapter 6: Mean-Variance AnalysisChapter 7: Alternative Models of Risk BehaviorChapter 8: Production Decisions under RiskChapter 9: Portfolio SelectionChapter 10: Dynamic Decisions under RiskChapter 11: Contract and Policy Design under RiskChapter 12: Some ApplicationsChapter 13: Market StabilizationAppendix A: Probability and StatisticsAppendix B: Optimization