A Method for the Evaluation of Retained Risk: ABSTRACT

A normative method for risk management decision-making is de-veloped from risk preference (utility) theory. Risk is measured by a new device called the "Risk Profile Curve." It represents a whole spectrum of value measurements, one for each risk aversion level. Best deductible and aggregate retention levels are examined. An equivalence between dominance in risk profile curves and the traditional stochastic dominance criteria is established for simply related loss distributions. Risk profile curves are shown to give more useful and practical decision-making information than that given by the usual stochastic dominance or expected utility results.