Related papers: Why Not Borrow, Invest, and Escape Poverty?
In economics, risk aversion is modeled via a concave Bernoulli utility within the expected-utility paradigm. We propose a simple test of expected utility and concavity. We find little support for either: only 30 percent of the choices are…
Various poverty reduction strategies are being implemented in the pursuit of eliminating extreme poverty. One such strategy is increased access to microcredit in poor areas around the world. Microcredit, typically defined as the supply of…
An agent choosing between various actions tends to take the one with the lowest cost. But this choice is arguably too rigid (not adaptive) to be useful in complex situations, e.g., where exploration-exploitation trade-off is relevant in…
We show that under plausible levels of background risk, no theory of choice under risk -- such as expected utility theory, prospect theory, or rank dependent utility -- can simultaneously satisfy the following three economic postulates: (i)…
This paper attempts to find a relationship between agents' risk aversion and inequality of incomes. Specifically, a model is proposed for the evolution in time of surplus/deficit distribution, and the long-time distributions are…
We propose a consumption-investment decision model where past consumption peak $h$ plays a crucial role. There are two important consumption levels: the lowest constrained level and a reference level, at which the risk aversion in terms of…
Inspired by recent ideas on how the analysis of complex financial risks can benefit from analogies with independent research areas, we propose an unorthodox framework for mapping microfinance credit risk---a major obstacle to the…
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…
An investor with constant relative risk aversion and an infinite planning horizon trades a risky and a safe asset with constant investment opportunities, in the presence of small transaction costs and a binding exogenous portfolio…
Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff. Economic intuition suggests that…
Debt aversion can have severe adverse effects on financial decision-making. We propose a model of debt aversion, and design an experiment involving real debt and saving contracts, to elicit and jointly estimate debt aversion with…
Flexibility options, such as demand response, energy storage and interconnection, have the potential to reduce variation in electricity prices between different future scenarios, therefore reducing investment risk. Moreover, investment in…
People are often reluctant to incorporate information produced by algorithms into their decisions, a phenomenon called ``algorithm aversion''. This paper shows how algorithm aversion arises when the choice to follow an algorithm conveys…
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…
We uncover a close link between outside options and risk attitude: when a decision-maker gains access to an outside option, her behaviour becomes less risk-averse, and conversely, any observed decrease of risk-aversion can be explained by…
We develop a structural econometric model to capture the decision dynamics of human evaluators on an online micro-lending platform, and estimate the model parameters using a real-world dataset. We find two types of biases in gender,…
Risk aversion is a common behavior universal to humans and animals alike. Economists have traditionally defined risk preferences by the curvature of the utility function. Psychologists and behavioral economists also make use of concepts…
We consider thin incomplete financial markets, where traders with heterogeneous preferences and risk exposures have motive to behave strategically regarding the demand schedules they submit, thereby impacting prices and allocations. We…
We run experimental asset markets to investigate the emergence of excess trading and the occurrence of synchronised trading activity leading to crashes in the artificial markets. The market environment favours early investment in the risky…
How do entrepreneurs act on their beliefs when probabilities of outcomes are unknown but subjectively perceived? We theorize that two distinct dimensions of ambiguity attitudes influence entrepreneurial action: ambiguity aversion - the…