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An analysis of risky financial decisions

A. Mehrez, Uri Regev, Avia Spivak

Open publisher page 4 citations

Abstract

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.

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What this paper is about

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.

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OpenAlex reports 4 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

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.

Key concepts: Constraint (computer-aided design), Utility maximization, Maximization, Expected utility hypothesis, Economics, Microeconomics, Actuarial science, Econometrics

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