A STANDARD MEASURE OF RISK AND RISK-VALUE MODELS

In this paper we propose a standard measure of risk that is based on t he converted expected utility of normalized lotteries with zero-expect ed values. This measure of risk has many desirable properties that cha racterize the notion of risk. It is very general and includes many pre viously proposed measures of risk as special cases. Moreover, our stan dard measure of risk provides a preference-based and unified method fo r risk studies. Since the standard measure of risk is compatible with the measure of expected utility, it can be used explicitly or implicit ly in an expected utility model. Under a condition called risk indepen dence, a decision could be made by explicitly trading off between risk and value, which offers an alternative representation of the expected utility model, named the standard risk-value model. Finally, we discu ss some other applications of the standard measure of risk and extensi ons of our risk-value tradeoff framework for descriptive decision maki ng.