COMPARING LOCAL RISKS BY ACCEPTANCE AND REJECTION

Authors

  • Amnon Schreiber

    Corresponding author
    1. Department of Economics and the Center for the Study of Rationality, Hebrew University of Jerusalem
    • Address correspondence to Amnon Schreiber, Department of Economics and the Center for the Study of Rationality, Hebrew University of Jerusalem, 91904 Jerusalem, Israel; e-mail: amnonschr@gmail.com.

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  • The author thanks Bob Aumann, Elchanan Ben-Porath, Florian Bierman, Dean Foster, Sergiu Hart, Moti Michaeli, Efrat Mossel, Ran Shorrer, Eyal Winter, and the anonymous referee, for useful discussions and suggestions.

Abstract

It is said that risky asset h acceptance dominates risky asset k if any decision maker who rejects the investment in h also rejects the investment in k. While in general acceptance dominance is a partial order, we show that it becomes a complete order if only infinitely short investment time horizons are considered. Two indices that induce different variants of this order are proposed, absolute acceptance dominance and relative acceptance dominance, and their properties are studied. We then show that many indices of riskiness that are compatible with the acceptance dominance order coincide with our indices in the continuous-time setup.

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