Related papers: Debt Aversion: Theory and Measurement
We represent preferences that exhibit absolute or relative attitudes towards ambiguity without assuming convexity of preferences. Our analysis is motivated by the recent experimental evidence by Baillon and Placido (2019) indicating that…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
We present a thorough empirical study on real interest rates by also including risk aversion through the introduction of the market price of risk. With the view of complex systems science and its multidisciplinary approach, we use the…
We propose a decision-analytical approach to comparing the flexibility of decision situations from the perspective of a decision-maker who exhibits constant risk-aversion over a monetary value model. Our approach is simple yet seems to be…
We conduct an incentivized experiment on a nationally representative US sample \\ (N=708) to test whether people prefer to avoid ambiguity even when it means choosing dominated options. In contrast to the literature, we find that 55\% of…
Banks are important for the development of economies in any financial ecosystem through consumer and business loans. Lending, however, presents risks; thus, banks have to determine the applicant's financial position to reduce the…
Extracting from shared resources requires making choices to balance personal profit and sustainability. We present the results of a behavioural experiment wherein we manipulate the default extraction from a finite resource. Participants…
We derive a closed-form expression capturing the degree of Relative Risk Aversion (RRA) of investors for non-"fair" lotteries. We argue that our formula is superior to earlier methods that have been proposed, as it is a function of only…
This paper considers the problem of measuring the credit risk in portfolios of loans, bonds, and other instruments subject to possible default under multi-factor models. Due to the amount of the portfolio, the heterogeneous effect of…
Purpose: This paper explores gender differences in two distinct forms of risk aversion -- Payoff Risk Aversion (PaRA) and Price Risk Aversion (PrRA) -- in order to provide a more nuanced understanding of how men and women respond to…
The fundamental principle in Modern Portfolio Theory (MPT) is based on the quantification of the portfolio's risk related to performance. Although MPT has made huge impacts on the investment world and prompted the success and prevalence of…
While enforcing egalitarian social norms is critical for human society, punishing social norm violators often incurs a cost to the self. This cost looms even larger when one can benefit from an unequal distribution of resources (i.e.…
This article examines the effect of different other-regarding preference types on the emergence of altruistic punishment behavior from an evolutionary perspective. Our findings corroborate, complement, and interlink the experimental and…
We analyze how retail investors price the credit risk of online P"P consumer loans in a reverse auction framework where personal interaction is absent. The explained interest rate variance is considerably larger than in comparable studies…
Online lending, a phenomenon which is becoming mainstream due to the migration of consumer finance to the Internet and the adoption of AI based lending models, is an example of learning by doing. This paper studies optimal policies for a…
This study explores the interdependent relationship between consumer credit and consumer confidence in the United States using monthly data from January 1978 to August 2024. Utilizing a Vector Error Correction Model (VECM), the analysis…
Technical Debt management decisions always imply a trade-off among outcomes at different points in time. In such intertemporal choices, distant outcomes are often valued lower than close ones, a phenomenon known as temporal discounting.…
Mortgage default prediction is a core task in financial risk management, and machine learning models are increasingly used to estimate default probabilities and provide interpretable signals for downstream decisions. In real-world mortgage…
This paper studies the advance-purchase game when a consumer has belief-based loss-averse preferences, introducing a novel perspective by incorporating reference updating. It demonstrates that loss aversion increases the consumer's…
This article presents a new model for valuing a credit default swap (CDS) contract that is affected by multiple credit risks of the buyer, seller and reference entity. We show that default dependency has a significant impact on asset…