Related papers: Local Utility and Multivariate Risk Aversion
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…
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…
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…
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…
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…
A model for decision making that generalizes Expected Utility Maximization is presented. This model, Expected Qualitative Utility Maximization, encompasses the Maximin criterion. It relaxes both the Independence and the Continuity…
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…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
The random utility model, a cornerstone in economics, is axiomatized by Falmagne (1978) and McFadden and Richter (1990) with the assumption that if a menu is observable, the choice frequencies of all alternatives are also observable.…
This paper formulates an utility indifference pricing model for investors trading in a discrete time financial market under non-dominated model uncertainty. The investors preferences are described by strictly increasing concave random…
Motivated by recent axiomatic developments, we study the risk- and ambiguity-averse investment problem where trading takes place over a fixed finite horizon and terminal payoffs are evaluated according to a criterion defined in terms of a…
This article focuses on the work of O. Chanel and G. Chichilnisky (2013) on the flaws of expected utility theory while assessing the value of life. Expected utility is a fundamental tool in decision theory. However, it does not fit with the…
The comparative statics of the optimal portfolios across individuals is carried out for a continuous-time complete market model, where the risky assets price process follows a joint geometric Brownian motion with time-dependent and…
We study the interaction between strategy, heterogeneity and growth in a two-agent model of capital accumulation. Preferences are represented by recursive utility functions with decreasing marginal impatience. The stationary equilibria of…
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…
In this paper, we explore the portfolio allocation problem involving an uncertain covariance matrix. We calculate the expected value of the Constant Absolute Risk Aversion (CARA) utility function, marginalized over a distribution of…
We provide a new algorithm for solving Risk Sensitive Partially Observable Markov Decisions Processes, when the risk is modeled by a utility function, and both the state space and the space of observations is finite. This algorithm is based…
We characterize when a convex risk measure associated to a law-invariant acceptance set in $L^\infty$ can be extended to $L^p$, $1\leq p<\infty$, preserving finiteness and continuity. This problem is strongly connected to the statistical…
Multivariate regular variation plays a role assessing tail risk in diverse applications such as finance, telecommunications, insurance and environmental science. The classical theory, being based on an asymptotic model, sometimes leads to…
Diversification is the typical investment strategy of risk-averse agents. However, non-diversified positions that allocate all resources to a single asset, state of the world or revenue stream are common too. We show that whenever finitely…