Related papers: Risk Apportionment: The Dual Story
Different models to study the wealth distribution in an artificial society have considered a transactional dynamics as the driving force. Those models include a risk aversion factor, but also a finite probability of favoring the poorer…
In this paper two portfolio choice models are studied: a purely possibilistic model, in which the return of a risky asset is a fuzzy number, and a mixed model in which a probabilistic background risk is added. For the two models an…
We establish an equivalence between two seemingly different theories: one is the traditional axiomatisation of incomplete preferences on horse lotteries based on the mixture independence axiom; the other is the theory of desirable gambles…
We consider a private variant of the classical allocation problem: given k goods and n agents with individual, private valuation functions over bundles of goods, how can we partition the goods amongst the agents to maximize social welfare?…
The standard way to evaluate language models on subjective tasks is through pairwise comparisons: an annotator chooses the "better" of two responses to a prompt. Leaderboards aggregate these comparisons into a single Bradley-Terry (BT)…
We provide a new foundation of risk aversion by showing that this attitude is fully captured by the propensity to seize insurance opportunities. Our foundation, which applies to all probabilistically sophisticated preferences, well accords…
We develop a robust framework for pricing and hedging of derivative securities in discrete-time financial markets. We consider markets with both dynamically and statically traded assets and make minimal measurability assumptions. We obtain…
Duality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static…
We consider a discrete-time version of the popular optimal dividend pay-out problem in risk theory. The novel aspect of our approach is that we allow for a risk averse insurer, i.e., instead of maximising the expected discounted dividends…
We explain the main concepts of Prospect Theory and Cumulative Prospect Theory within the framework of rational dynamic asset pricing theory. We derive option pricing formulas when asset returns are altered with a generalized Prospect…
Aggregating risks from multiple sources can be complex and demanding, and decision makers usually adopt heuristics to simplify the evaluation process. This paper axiomatizes two closed related and yet different heuristics, narrow bracketing…
Using a model of wealth distribution where traders are characterized by quenched random saving propensities and trade among themselves by bipartite transactions, we mimic the enhanced rates of trading of the rich by introducing the…
Consider a university assigning students to courses and dorms. While many mechanisms are available, they each have their own drawbacks. Running serial dictatorship once for all goods is highly unfair, but running serial dictatorship…
Managing a portfolio to a risk model can tilt the portfolio toward weaknesses of the model. As a result, the optimized portfolio acquires downside exposure to uncertainty in the model itself, what we call "second order risk." We propose a…
Sequences of repeated gambles provide an experimental tool to characterize the risk preferences of humans or artificial decision-making agents. The difficulty of this inference depends on factors including the details of the gambles offered…
Automated reasoning about uncertain knowledge has many applications. One difficulty when developing such systems is the lack of a completely satisfactory integration of logic and probability. We address this problem directly. Expressive…
A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization…
Differential privacy (DP) is a mathematical privacy notion increasingly deployed across government and industry. With DP, privacy protections are probabilistic: they are bounded by the privacy budget parameter, $\epsilon$. Prior work in…
In our previous paper, "A Unified Approach to Systemic Risk Measures via Acceptance Set" (\textit{Mathematical Finance, 2018}), we have introduced a general class of systemic risk measures that allow for random allocations to individual…
We consider the psychological effect of preference reversal and show that it finds a natural explanation in the frame of quantum decision theory. When people choose between lotteries with non-negative payoffs, they prefer a more certain…