Risk and Regret in Banking

M. Mulaudzi, M.A. Petersen, and I. Schoeman (South Africa)


Banks; Risk; Regret


We model how decisions about the allocation of available funds to loans and Treasuries are dependent on perceptions about risk and regret in the banking industry. Our discus sion is based on utility theory where a regret attribute is considered alongside a risk component as an integral part of the objective function. In addition, we provide a compar ison between a risk- and a regret-averse banks. In order to accomplish the latter, we represent the main results graph ically.

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