Related papers: A Theory of Choice Bracketing under Risk

We focus on two particular aspects of model risk: the inability of a chosen model to fit observed market prices at a given point in time (calibration error) and the model risk due to recalibration of model parameters (in contradiction to…

We study consumption dependence in the context of random utility and repeated choice. We show that, in the presence of consumption dependence, the random utility model is a misspecified model of repeated rational choice. This…

When decision makers evaluate a sequence of rewards, they may pay more attention to larger rewards and, given attention is limited, less attention to smaller rewards. They may also become less attentive to each reward when attention is…

An analyst observes an agent take a sequence of actions. The analyst does not have access to the agent's information and ponders whether the observed actions could be justified through a rational Bayesian model with a known utility…

A central problem in business concerns the optimal allocation of limited resources to a set of available tasks, where the payoff of these tasks is inherently uncertain. In credit card fraud detection, for instance, a bank can only assign a…

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…

This paper solves the consumption-investment problem under Epstein-Zin preferences on a random horizon. In an incomplete market, we take the random horizon to be a stopping time adapted to the market filtration, generated by all observable,…

In the multiarmed bandit problem a gambler chooses an arm of a slot machine to pull considering a tradeoff between exploration and exploitation. We study the stochastic bandit problem where each arm has a reward distribution supported in a…

Prediction models have been widely adopted as the basis for decision-making in domains as diverse as employment, education, lending, and health. Yet, few real world problems readily present themselves as precisely formulated prediction…

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…

This paper studies how violations of structural assumptions like expected utility and exponential discounting can be connected to basic rationality violations, even though these assumptions are typically regarded as independent building…

The timing of strategic exit is one of the most important but difficult business decisions, especially under competition and uncertainty. Motivated by this problem, we examine a stochastic game of exit in which players are uncertain about…

In repeated-game applications where both the collusive and non-collusive outcomes can be supported as equilibria, researchers must resolve underlying selection questions if theory will be used to understand counterfactual policies. One…

Classic decision-theory is based on the maximum expected utility (MEU) principle, but crucially ignores the resource costs incurred when determining optimal decisions. Here we propose an axiomatic framework for bounded decision-making that…

This paper considers utility indifference valuation of derivatives under model uncertainty and trading constraints, where the utility is formulated as an additive stochastic differential utility of both intertemporal consumption and…

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…

Snapshots of "best" (or "worst") experience are known to dominate human memory and may thus also have a significant effect on future behaviour. We consider here a model of repeated decision-making where, at every time step, an agent takes…

Beginning with a simple semantics for propositions, based on counting observations, it is shown that probabilistic and fuzzy logic correspond to two different heuristic assumptions regarding the combination of propositions whose evidence…

Models allowing for random heterogeneity, such as mixed logit and latent class, are generally observed to obtain superior model fit and yield detailed insights into unobserved preference heterogeneity. Using theoretical arguments and two…

Policy learning algorithms are widely used in areas such as personalized medicine and advertising to develop individualized treatment regimes. However, most methods force a decision even when predictions are uncertain, which is risky in…