Related papers: Background risk and small-stakes risk aversion
We consider statistical Markov Decision Processes where the decision maker is risk averse against model ambiguity. The latter is given by an unknown parameter which influences the transition law and the cost functions. Risk aversion is…
Recent work on the logical structure of non-locality has constructed scenarios where observations of multi-partite systems cannot be adequately described by compositions of non-signaling subsystems. In this paper we apply these frameworks…
People often deviate from expected utility theory when making risky and intertemporal choices. While the effects of probabilistic risk and time delay have been extensively studied in isolation, their interplay and underlying theoretical…
We provide sufficient conditions for semi-nonparametric point identification of a mixture model of decision making under risk, when agents make choices in multiple lines of insurance coverage (contexts) by purchasing a bundle. As a first…
The dominant theories of rational choice assume logical omniscience. That is, they assume that when facing a decision problem, an agent can perform all relevant computations and determine the truth value of all relevant logical/mathematical…
In random expected utility (Gul and Pesendorfer, 2006), the distribution of preferences is uniquely recoverable from random choice. This paper shows through two examples that such uniqueness fails in general if risk preferences are random…
The risk-sensitive foraging theory formulated in terms of the (daily) energy budget rule has been influential in behavioural ecology as well as other disciplines. Predicting risk-aversion on positive budgets and risk-proneness on negative…
We propose and axiomatize preferences on a product state space in light of uncertainty regarding the dependency of different payoff-relevant factors. Dependence structures allow to decompose probabilities and allow to pin down behavior…
Possibilistic risk theory starts from the hypothesis that risk is modelled by fuzzy numbers. In particular, in a possibilistic portfolio choice problem, the return of a risky asset will be a fuzzy number. The expected utility operators have…
Auctions in which agents' payoffs are random variables have received increased attention in recent years. In particular, recent work in algorithmic mechanism design has produced mechanisms employing internal randomization, partly in…
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 establish explicit socially optimal rules for an irreversible investment deci- sion with time-to-build and uncertainty. Assuming a price sensitive demand function with a random intercept, we provide comparative statics and economic…
This paper investigates the dynamics of gambling and how they can affect risk-taking behavior in regions not explored by Kahneman and Tversky's Prospect Theory. Specifically, it questions why extreme outcomes do not fit the theory and…
When it comes to structural estimation of risk preferences from data on choices, random utility models have long been one of the standard research tools in economics. A recent literature has challenged these models, pointing out some…
In this paper the effect of posibilistic or mixed background risk on the level of optimal prevention is studied. In the framework of five purely possibilistic or mixed models, necessary and sufficient conditions are found such that the…
This paper builds a rule for decisionmaking from the physical behavior of single neurons, the well established neural circuitry of mutual inhibition, and the evolutionary principle of natural selection. No axioms are used in the derivation…
We provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in a classic expected return maximization problem. For what we call the infimum of expectations class of risk measures, we show…
Barseghyan and Molinari (2023) give sufficient conditions for semi-nonparametric point identification of parameters of interest in a mixture model of decision-making under risk, allowing for unobserved heterogeneity in utility functions and…
We axiomatize the Choquet rank-dependent utility model within a Savage framework with an exogenous source of pure risk. This model is a decision model under ambiguity, serving as a conceptual generalization of the Choquet expected utility…
Nontransitive choices have long been an area of curiosity within economics. However, determining whether nontransitive choices represent an individual's preference is a difficult task since choice data is inherently stochastic. This paper…