Related papers: Background risk and small-stakes risk aversion

Decision theories offer principled methods for making choices under various types of uncertainty. Algorithms that implement these theories have been successfully applied to a wide range of real-world problems, including materials and drug…

The so-called risk diversification principle is analyzed, showing that its convenience depends on individual characteristics of the risks involved and the dependence relationship among them. ----- Se analiza el principio de…

This paper investigates portfolio selection within a continuous-time financial market with regime-switching and beliefs-dependent utilities. The market coefficients and the investor's utility function both depend on the market regime, which…

We define a new class of Bayesian point estimators, which we refer to as risk averse. Using this definition, we formulate axioms that provide natural requirements for inference, e.g. in a scientific setting, and show that for well-behaved…

This paper studies preference aggregation under risk. In our model, each agent has an incomplete preference relation represented by a set of expected utility functions. The classical Pareto principle is silent on agreement involving…

We consider the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for…

Choice functions constitute a simple, direct and very general mathematical framework for modelling choice under uncertainty. In particular, they are able to represent the set-valued choices that typically arise from applying decision rules…

We reconsider the microeconomic foundations of financial economics. Motivated by the importance of Knightian Uncertainty in markets, we present a model that does not carry any probabilistic structure ex ante, yet is based on a common order.…

This paper argues that, insofar as we doubt the bivalence of the Continuum Hypothesis or the truth of the Axiom of Choice, we should also doubt the consistency of third-order arithmetic, both the classical and intuitionistic versions.…

The most commonly accepted model for investors' preferences is expected utility theory. More recently, other theories have emerged and pose new challenges to mathematics. The present paper treats preferences of cumulative prospect theory…

Many biological, psychological and economic experiments have been designed where an organism or individual must choose between two options that have the same expected reward but differ in the variance of reward received. In this way,…

A family of models of individual discrete choice are constructed by means of statistical averaging of choices made by a subject in a reinforcement learning process, where the subject has short, k-term memory span. The choice probabilities…

In the presence of ambiguity on the driving force of market randomness, we consider the dynamic portfolio choice without any predetermined investment horizon. The investment criteria is formulated as a robust forward performance process,…

Many economic theory models incorporate finiteness assumptions that, while introduced for simplicity, play a real role in the analysis. We provide a principled framework for scaling results from such models by removing these finiteness…

Regression plays a key role in many research areas and its variable selection is a classic and major problem. This study emphasizes cost of predictors to be purchased for future use, when we select a subset of them. Its economic aspect is…

Agents' learning from feedback shapes economic outcomes, and many economic decision-makers today employ learning algorithms to make consequential choices. This note shows that a widely used learning algorithm, $\varepsilon$-Greedy, exhibits…

Risk aversion and insurance are two prominent and interconnected concepts in economics and finance. To explore their fundamental connection, we introduce risk-insurance parity, which associates various classes of insurance contracts with…

A primary motivation for reasoning under uncertainty is to derive decisions in the face of inconclusive evidence. However, Shafer's theory of belief functions, which explicitly represents the underconstrained nature of many reasoning…

Dependence on the parameter is continuous when perturbations of the parameter preserves strict preference for one alternative over another. We characterise this property via a utility function over alternatives that depends continuously on…

We demonstrate a limitation of discounted expected utility, a standard approach for representing the preference to risk when future cost is discounted. Specifically, we provide an example of the preference of a decision maker that appears…