Related papers: A Non-Parametric Test of Risk Aversion
Counterfactual explanations indicate the smallest change in input that can translate to a different outcome for a machine learning model. Counterfactuals have generated immense interest in high-stakes applications such as finance,…
Most work in mechanism design assumes that buyers are risk neutral; some considers risk aversion arising due to a non-linear utility for money. Yet behavioral studies have established that real agents exhibit risk attitudes which cannot be…
The theory of acceptance sets and their associated risk measures plays a key role in the design of capital adequacy tests. The objective of this paper is to investigate, in the context of bounded financial positions, the class of…
This paper develops and implements a nonparametric test of Random Utility Models. The motivating application is to test the null hypothesis that a sample of cross-sectional demand distributions was generated by a population of rational…
Traditional learning approaches for classification implicitly assume that each mistake has the same cost. In many real-world problems though, the utility of a decision depends on the underlying context $x$ and decision $y$. However,…
We consider an expected utility maximization problem where the utility function is not necessarily concave and the time horizon is uncertain. We establish a necessary and sufficient condition for the optimality for general non-concave…
Possibilistic risk theory starts from the hypothesis that risk is modelled by fuzzy numbers. In particular, in a possibilistic portfolio choice problem, the return of a risky asset will be a fuzzy number. The expected utility operators have…
This paper axiomatizes, in a two-stage setup, a new theory for decision under risk and ambiguity. The axiomatized preference relation $\succeq$ on the space $\tilde{V}$ of random variables induces an ambiguity index $c$ on the space…
We propose and axiomatize preferences on a product state space in light of uncertainty regarding the dependency of different payoff-relevant factors. Dependence structures allow to decompose probabilities and allow to pin down behavior…
In this paper, we address the identification and estimation of insurance models where insurees have private information about their risk and risk aversion. The model includes random damages and allows for several claims, while insurers…
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…
The risk of financial positions is measured by the minimum amount of capital to raise and invest in eligible portfolios of traded assets in order to meet a prescribed acceptability constraint. We investigate nondegeneracy, finiteness and…
Reliability (survival analysis, to biostatisticians) is a key ingredient for mak- ing decisions that mitigate the risk of failure. The other key ingredient is utility. A decision theoretic framework harnesses the two, but to invoke this…
Motivated by recent axiomatic developments, we study the risk- and ambiguity-averse investment problem where trading takes place over a fixed finite horizon and terminal payoffs are evaluated according to a criterion defined in terms of a…
We show that coherent risk measures are ineffective in curbing the behaviour of investors with limited liability or excessive tail-risk seeking behaviour if the market admits statistical arbitrage opportunities which we term…
We develop a method for computing policies in Markov decision processes with risk-sensitive measures subject to temporal logic constraints. Specifically, we use a particular risk-sensitive measure from cumulative prospect theory, which has…
I conduct Rabin's (2000) calibration exercise in the subjective expected utility realm. I show that the rejection of some risky bet by a risk-averse agent only implies the rejection of more extreme and less desirable bets and nothing more.
Under expected utility the local index of absolute risk aversion has played a central role in many applications. Besides, its link with the "global" concepts of the risk and probability premia has reinforced its attractiveness. This paper…
The article's aim is to provide a solution to the equity premium puzzle with a derived model. The derived model which depends on Consumption Capital Asset Pricing Model gives a solution to the puzzle with the values of coefficient of…
We revisit the problem of portfolio selection, where an investor maximizes utility subject to a risk constraint. Our framework is very general and accommodates a wide range of utility and risk functionals, including non-concave utilities…