Related papers: Background risk and small-stakes risk aversion

Probability forecasts are intended to account for the uncertainties inherent in forecasting. It is suggested that from an end-user's point of view probability is not necessarily sufficient to reflect uncertainties that are not simply the…

Inertia and context-dependent choice effects are well-studied classes of behavioural phenomena. While much is known about these effects in isolation, little is known about whether one of them "dominates" the other when both can potentially…

Strategies aimed at reducing the negative effects of long-term uncertainty and risk are common in biology, game theory, and finance, even if they entail a cost in terms of mean benefit. Here, we focus on the single mutant's invasion of a…

We introduce a way to compare actions in decision problems. One action is safer than another if the set of beliefs at which the decision-maker prefers the safer action expands as the decision-maker becomes more risk averse. We provide a…

In the present article we use the quantum formalism to describe the effects of risk and ambiguity in decision theory. The main idea is that the probabilities in the classic theory of expected utility are estimated probabilities, and thus do…

One of the basic principles of risk management is that we should always keep an eye on ways that things could go badly wrong, even if they seem unlikely. The more disastrous a potential failure, the more improbable it needs to be, before we…

In this paper, we examine two problems on applied probability, which are directly connected with the dependence in presence of heavy tails. The first problem, is related to max-sum equivalence of the randomly weighted sums in bi-variate set…

Estimating and controlling large risks has become one of the main concern of financial institutions. This requires the development of adequate statistical models and theoretical tools (which go beyond the traditionnal theories based on…

We propose a robust method of discrete choice analysis when agents' choice sets are unobserved. Our core model assumes nothing about agents' choice sets apart from their minimum size. Importantly, it leaves unrestricted the dependence,…

Complexity of the problem of choosing among uncertain acts is a salient feature of many of the environments in which departures from expected utility theory are observed. I propose and axiomatize a model of choice under uncertainty in which…

We propose a multivariate extension of Yaari's dual theory of choice under risk. We show that a decision maker with a preference relation on multidimensional prospects that preserves first order stochastic dominance and satisfies…

In a consideration set model, an individual maximizes utility among the considered alternatives. I relate a consideration set additive random utility model to classic discrete choice and the extended additive random utility model, in which…

This paper examines optimal risk sharing for empirically realistic risk attitudes, providing results on Pareto optimality, competitive equilibria, utility frontiers, and the first and second theorems of welfare. Contrary to common…

The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this…

We propose a game-theoretic framework that incorporates both incomplete information and general ambiguity attitudes on factors external to all players. Our starting point is players' preferences on payoff-distribution vectors, essentially…

We develop a structural econometric model to capture the decision dynamics of human evaluators on an online micro-lending platform, and estimate the model parameters using a real-world dataset. We find two types of biases in gender,…

In this work we generalize standard Decision Theory by assuming that two outcomes can also be incomparable. Two motivating scenarios show how incomparability may be helpful to represent those situations where, due to lack of information,…

Game theory has traditionally had a relatively limited view of risk based on how a player's expected reward is impacted by the uncertainty of the actions of other players. Recently, a new game-theoretic approach provides a more holistic…

A common assumption of political economy is that profit rates across firms or sectors tend to uniformity, and often models are formulated in which this tendency is assumed to have been realised. But in reality this tendency is never…

Despite the obvious advantage of simple life forms capable of fast replication, different levels of cognitive complexity have been achieved by living systems in terms of their potential to cope with environmental uncertainty. Against the…