Related papers: A Non-Parametric Test of Risk Aversion
This article focuses on the work of O. Chanel and G. Chichilnisky (2013) on the flaws of expected utility theory while assessing the value of life. Expected utility is a fundamental tool in decision theory. However, it does not fit with the…
The present paper introduces a theoretical framework through which the degree of risk aversion with respect to uncertain prices can be measured through the context of the indirect utility function (IUF) using a lab experiment. First, the…
We provide sufficient conditions for semi-nonparametric point identification of a mixture model of decision making under risk, when agents make choices in multiple lines of insurance coverage (contexts) by purchasing a bundle. As a first…
We study the connection between risk aversion, number of consumers and uniqueness of equilibrium. We consider an economy with two goods and $c$ impatience types, where each type has additive separable preferences with HARA Bernoulli utility…
This paper presents a method for incorporating risk aversion into existing decision tree models used in economic evaluations. The method involves applying a probability weighting function based on rank dependent utility theory to reduced…
This paper discusses an alternative explanation for the empirical findings contradicting the positive relationship between risk (variance) and reward (expected return). We show that these contradicting results might be due to the false…
Probabilistic risk aversion, defined through quasi-convexity in probabilistic mixtures, is a common useful property in decision analysis. We study a general class of non-monotone mappings, called the generalized rank-dependent functions,…
How should well-being be prioritised in society, and what trade-offs are people willing to make between fairness and personal well-being? We investigate these questions using a stated preference experiment with a nationally representative…
Take up of microcredit by the poor for investment in businesses or human capital turned out to be very low. We show that this could be explained by risk aversion, without relying on fixed costs or other forms of non-convexity in the…
We study a non-concave optimization problem in which a financial company maximizes the expected utility of the surplus under a risk-based regulatory constraint. For this problem, we consider four different prevalent risk constraints…
We demonstrate a limitation of discounted expected utility, a standard approach for representing the preference to risk when future cost is discounted. Specifically, we provide an example of the preference of a decision maker that appears…
The aim of this study is to present proofs for new theorems. Basic thoughts of new definitions emerge from the decision-making under uncertainty in economics and finance. Shape of the certain utility curve is central to standard definitions…
Uncertainty is prevalent in engineering design, data-driven problems, and decision making broadly. Due to inherent risk-averseness and ambiguity about assumptions, it is common to address uncertainty by formulating and solving conservative…
We investigate a framework for robo-advisors to estimate non-expert clients' risk aversion using adaptive binary-choice questionnaires. We model risk aversion using cost functions and spectral risk measures in a static setting. We prove the…
Carroll and Kimball (1996) have shown that, in the class of utility functions that are strictly increasing, strictly concave, and have nonnegative third derivatives, hyperbolic absolute risk aversion (HARA) is sufficient for the concavity…
We consider the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for…
We implement nonparametric revealed-preference tests of subjective expected utility theory and its generalizations. We find that a majority of subjects' choices are consistent with the maximization of some utility function. They respond to…
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.…
The family of admissible positions in a transaction costs model is a random closed set, which is convex in case of proportional transaction costs. However, the convexity fails, e.g. in case of fixed transaction costs or when only a finite…
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…