Related papers: Debt Aversion: Theory and Measurement
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…
A decision maker starts from a judgmental decision and moves to the closest boundary of the confidence interval. This statistical decision rule is admissible and does not perform worse than the judgmental decision with a probability equal…
This study investigates the impact of loss-framing and individual risk attitude on willingness- to purchase insurance products utilizing a game-like interface as choice architecture. The application presents events as experienced in real…
I develop a tractable adverse-selection model comparing secured bank loans and bonds when both pledge collateral but differ in effective liquidation efficiency. A small wedge in recovery rates generates coexistence, a sharp bank-bond…
People are often reluctant to sell a house, or shares of stock, below the price at which they originally bought it. While this is generally not consistent with rational utility maximization, it does reflect two strong empirical regularities…
The equity risk premium puzzle is that the return on equities has far exceeded the average return on short-term risk-free debt and cannot be explained by conventional representative-agent consumption based equilibrium models. We review a…
Recently, there has been a growing interest in network research, especially in these fields of biology, computer science, and sociology. It is natural to address complex financial issues such as the European sovereign debt crisis from the…
This paper investigates the dynamics of gambling and how they can affect risk-taking behavior in regions not explored by Kahneman and Tversky's Prospect Theory. Specifically, it questions why extreme outcomes do not fit the theory and…
Strong empirical evidence from laboratory experiments, and more recently from population surveys, shows that individuals, when evaluating their situations, pay attention to whether they experience gains or losses, with losses weighing more…
Complexity of the problem of choosing among uncertain acts is a salient feature of many of the environments in which departures from expected utility theory are observed. I propose and axiomatize a model of choice under uncertainty in which…
While the importance of personalized policymaking is widely recognized, fully personalized implementation remains rare in practice, often due to legal, fairness or cost concerns. We study the problem of policy targeting for a regret-averse…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
In real-world decision-making problems, for instance in the fields of finance, robotics or autonomous driving, keeping uncertainty under control is as important as maximizing expected returns. Risk aversion has been addressed in the…
With lots of freemium and premium, open and closed source software tools that are available in the market for dealing with different activities of Technical Debt management across different dimensions, identifying the right set of tools for…
We provide a new foundation of risk aversion by showing that this attitude is fully captured by the propensity to seize insurance opportunities. Our foundation, which applies to all probabilistically sophisticated preferences, well accords…
Most people are risk-averse (risk-seeking) when they expect to gain (lose). Based on a generalization of ``expected utility theory'' which takes this into account, we introduce an automaton mimicking the dynamics of economic operations.…
We develop a deep learning model of multi-period mortgage risk and use it to analyze an unprecedented dataset of origination and monthly performance records for over 120 million mortgages originated across the US between 1995 and 2014. Our…
We study large and moderate deviations for a life insurance portfolio, without assuming identically distributed losses. The crucial assumption is that losses are bounded, and that variances are bounded below. From a standard large…
We study the incentives of banks in a financial network, where the network consists of debt contracts and credit default swaps (CDSs) between banks. One of the most important questions in such a system is the problem of deciding which of…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…