Related papers: Probability Premium and Attitude Towards Probabili…
In this paper, we introduce a new model of selection behavior under risk that describes an essential cognitive process for comparing values of objects and making a selection decision. This model is constructed by the quantum-like approach…
Ranking or assessing centrality in multivariate and non-Euclidean data is difficult because there is no canonical order and many depth notions become computationally fragile in high-dimensional or structured settings. We introduce a…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
Ramsey (1926) sketches a proposal for measuring the subjective probabilities of an agent by their observable preferences, assuming that the agent is an expected utility maximizer. I show how to extend the spirit of Ramsey's method to a…
Positivity, the assumption that every unique combination of confounding variables that occurs in a population has a non-zero probability of an action, can be further delineated as deterministic positivity and stochastic positivity. Here, we…
We consider the construction of insurance premiums that are monotonically increasing with respect to a loading parameter. By introducing weight functions that are totally positive of higher order, we derive higher monotonicity properties of…
Classically, risk is characterized by a point value probability indicating the likelihood of occurrence of an adverse effect. However, there are domains where the attainability of objective numerical risk characterizations is increasingly…
Preference Inference involves inferring additional user preferences from elicited or observed preferences, based on assumptions regarding the form of the user's preference relation. In this paper we consider a situation in which…
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…
We present a general approach to the pricing of products in finance and insurance in the multi-period setting. It is a combination of the utility indifference pricing and optimal intertemporal risk allocation. We give a characterization of…
This work proposes a view of probability as a relative measure rather than an absolute one. To demonstrate this concept, we focus on finite outcome spaces and develop three fundamental axioms that establish requirements for relative…
We generalize the classical probability frame by adopting a wider family of random variables that includes nondeterministic ones. The frame that emerges is known to host a ''classical'' extension of quantum mechanics. We discuss the notion…
(l) I have enough evidence to render the sentence S probable. (la) So, relative to what I know, it is rational of me to believe S. (2) Now that I have more evidence, S may no longer be probable. (2a) So now, relative to what I know, it is…
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…
Gilboa and Schmeidler's (1989) uncertainty aversion plays a central role in decision theory and economics, yet many inconsistent behaviors have been observed in experiments. Motivated by this, we study an axiom postulating a minimal degree…
Humans use social context to specify preferences over behaviors, i.e. their reward functions. Yet, algorithms for inferring reward models from preference data do not take this social learning view into account. Inspired by pragmatic human…
The consumers' willingness to pay plays an important role in economic theory and in setting policy. For a market, this function can often be estimated from observed behavior -- preferences are revealed. However, economists would like to…
Classical statistics and Bayesian statistics refer to the frequentist and subjective theories of probability respectively. Von Mises and De Finetti, who authored those conceptualizations, provide interpretations of the probability that…
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…
The process of doing Science in condition of uncertainty is illustrated with a toy experiment in which the inferential and the forecasting aspects are both present. The fundamental aspects of probabilistic reasoning, also relevant in real…