Risk-based capital adequacy requirements are the main tool employed by government regulators to assure bank stability. This approach allows banks to choose from a number of alternative methods for calculating the required capital. Many systems for measuring risk differ significantly in cost,...

Prospect theory (PT), which relies on subjects’ behavior as observed in laboratory experiments, contradicts the behavior predicted by the Expected Utility (EU) paradigm. Having wealth of $100,000 or having wealth of $90,000 and winning $10,000 in a lottery is the same by EU paradigm but not...