Related papers: Risk Aversion and Catastrophic Risks: the Pill Exp…
This note provides a critical discussion of the \textit{Critical Cost-Efficiency Index} (CCEI) as used to assess deviations from utility-maximizing behavior. I argue that the CCEI is hard to interpret, and that it can disagree with other…
We investigate the probability equivalent level of Value at Risk and $n^{\mathrm{th}}$-order Expected Shortfall (called PELVE_n), which can be considered as a variant of the notion of the probability equivalent level of Value at Risk and…
Utility functions or their equivalents (value functions, objective functions, loss functions, reward functions, preference orderings) are a central tool in most current machine learning systems. These mechanisms for defining goals and…
Regulatory approval of products in high-stakes domains such as drug development requires statistical evidence of safety and efficacy through large-scale randomized controlled trials. However, the high financial cost of these trials may…
We consider the discretized Bachelier model where hedging is done on an equidistant set of times. Exponential utility indifference prices are studied for path-dependent European options and we compute their non-trivial scaling limit for a…
We implement nonparametric revealed-preference tests of subjective expected utility theory and its generalizations. We find that a majority of subjects' choices are consistent with the maximization of some utility function. They respond to…
We study expected utility maximization problem with constant relative risk aversion utility function in a complete market under the reinforcement learning framework. To induce exploration, we introduce the Tsallis entropy regularizer, which…
Take up of microcredit by the poor for investment in businesses or human capital turned out to be very low. We show that this could be explained by risk aversion, without relying on fixed costs or other forms of non-convexity in the…
Nowadays, attitudes towards electricity customers have been changed, so that they are no longer considered static players. The customers behavior identification is vital for establishing modern power systems. This paper utilizes the…
Marginal expected shortfall is unquestionably one of the most popular systemic risk measures. Studying its extreme behaviour is particularly relevant for risk protection against severe global financial market downturns. In this context,…
Risk prediction models are often advertised as deterministic functions that map covariates to predicted risks. However, they are typically trained using finite samples, and as such, their predictions are inherently uncertain. This…
In this paper, we introduce a new model of selection behavior under risk that describes an essential cognitive process for comparing values of objects and making a selection decision. This model is constructed by the quantum-like approach…
Counterfactual utilities evaluate decisions not only by the realized outcome under a given decision, but also by the counterfactual outcomes that would arise under alternative decisions. By generalizing standard utility frameworks, they…
We show that coherent risk measures are ineffective in curbing the behaviour of investors with limited liability or excessive tail-risk seeking behaviour if the market admits statistical arbitrage opportunities which we term…
We propose a new measure of deviations from expected utility theory. For any positive number~$e$, we give a characterization of the datasets with a rationalization that is within~$e$ (in beliefs, utility, or perceived prices) of expected…
We provide a theoretical framework to understand how widely used measures of choice difficulty relate. In a binary-option Bayesian expected-utility framework, we show that three measures of difficulty, (i) understanding (ex-ante value),…
Applying a modification of Extreme value Theory (thanks to a dual distribution technique by the authors on data over the past 2,500 years, we show that pandemics are extremely fat-tailed in terms of fatalities, with a marked potentially…
The interpretation of randomised clinical trial results is often complicated by intercurrent events. For instance, rescue medication is sometimes given to patients in response to worsening of their disease, either in addition to the…
Under mean-variance-utility framework, we propose a new portfolio selection model, which allows wealth and time both have influences on risk aversion in the process of investment. We solved the model under a game theoretic framework and…
We examine behavioral axioms in decision theory that are satisfied approximately rather than exactly. We demonstrate that in key domains -- decisions under risk, uncertainty, and intertemporal choice -- behavior that \emph{almost} satisfies…