Playing it Safe: Actions Attractive to the Risk Averse

Marilyn Pease; Mark Whitmeyer

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arXiv · 2310.17517

Playing it Safe: Actions Attractive to the Risk Averse

Marilyn Pease·Mark Whitmeyer

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Abstract

We introduce a way to compare actions in decision problems. One action is safer than another if the set of beliefs at which the decision-maker prefers the safer action expands as the decision-maker becomes more risk averse. We provide a full characterization of this relation, show that it is equivalent to robust conceptions of single-crossing and second-order stochastic dominance, and reveal that in monotone decision problems it totally orders the decision-maker's set of actions. We discuss applications to games, insurance, investment hedging, and security design.

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Marilyn Pease, Mark Whitmeyer. 2023-10-26. Playing it Safe: Actions Attractive to the Risk Averse. https://arxiv.org/abs/2310.17517

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