Acceptance Set

An acceptance set is a concept used in risk management and decision-making to describe a group of financial outcomes or scenarios that are considered acceptable or desirable under certain conditions. It represents the range of outcomes that meet specific criteria or standards, often related to a company’s risk tolerance or regulatory requirements. Anything within the acceptance set is deemed to be within an acceptable level of risk or performance, while outcomes outside this set would be considered too risky or undesirable.

Example

A company might define its acceptance set for investment returns as any outcome that provides at least a 5% return with no more than a 10% chance of loss. Investment options within this set would be considered acceptable.