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A classical portfolio theory deals with finding the optimal proportion in which an agent invests a wealth in a risk-free asset and a probabilistic risky asset. Formulating and solving the problem depend on how the risk is represented and…
This paper axiomatizes, in a two-stage setup, a new theory for decision under risk and ambiguity. The axiomatized preference relation $\succeq$ on the space $\tilde{V}$ of random variables induces an ambiguity index $c$ on the space…
Most people are risk-averse (risk-seeking) when they expect to gain (lose). Based on a generalization of ``expected utility theory'' which takes this into account, we introduce an automaton mimicking the dynamics of economic operations.…
It has been proposed in medical decision analysis to express the ``first do no harm'' principle as an asymmetric utility function in which the loss from killing a patient would count more than the gain from saving a life. Such a utility…
The von Neumann and Morgenstern theory postulates that rational choice under uncertainty is equivalent to maximization of expected utility (EU). This view is mathematically appealing and natural because of the affine structure of the space…
Desirability can be understood as an extension of Anscombe and Aumann's Bayesian decision theory to sets of expected utilities. At the core of desirability lies an assumption of linearity of the scale in which rewards are measured. It is a…
Multivariate methods that relate outcomes to risk factors have been adopted clinically to individualize treatment. This has promoted the belief that individuals have a true or unique risk. The logic of assigning an individual a single risk…
Diversification represents the idea of choosing variety over uniformity. Within the theory of choice, desirability of diversification is axiomatized as preference for a convex combination of choices that are equivalently ranked. This…
The standard approach to risk-averse control is to use the Exponential Utility (EU) functional, which has been studied for several decades. Like other risk-averse utility functionals, EU encodes risk aversion through an increasing convex…
This study investigates the influence of risk tolerance on the expected utility in the long run. We estimate the extent to which the expected utility of optimal portfolios is affected by small changes in the risk tolerance. For this…
This work presents an asset pricing model that under rational expectation equilibrium perspective shows how, depending on risk aversion and noise volatility, a risky-asset has one equilibrium price that differs in term of efficiency: an…
We consider market players with tail-risk-seeking behaviour as exemplified by the S-shaped utility introduced by Kahneman and Tversky. We argue that risk measures such as value at risk (VaR) and expected shortfall (ES) are ineffective in…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
It is common to encounter the situation with uncertainty for decision makers (DMs) in dealing with a complex decision making problem. The existing evidence shows that people usually fear the extreme uncertainty named as the unknown. This…
I proposed (8, 1, 3) that p values should be supplemented by an estimate of the false positive risk (FPR). FPR was defined as the probability that, if you claim that there is a real effect on the basis of p value from a single unbiased…
This paper presents a method for incorporating risk aversion into existing decision tree models used in economic evaluations. The method involves applying a probability weighting function based on rank dependent utility theory to reduced…
We use the exact finite sample likelihood and statistical decision theory to answer questions of ``why?'' and ``what should you have done?'' using data from randomized experiments and a utility function that prioritizes safety over…
We consider the Bachelier model with linear price impact. Exponential utility indifference prices are studied for vanilla European options and we compute their non-trivial scaling limit for a vanishing price impact which is inversely…
We revisit Machina's local utility as a tool to analyze attitudes to multivariate risks. We show that for non-expected utility maximizers choosing between multivariate prospects, aversion to multivariate mean preserving increases in risk is…
Causal inference is best understood using potential outcomes. This use is particularly important in more complex settings, that is, observational studies or randomized experiments with complications such as noncompliance. The topic of this…