Related papers: Risk Aversion and Insurance Propensity
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…
Some years ago, Snapinn and Jiang[1] considered the interpretation and pitfalls of absolute versus relative treatment effect measures in analyses of time-to-event outcomes. Through specific examples and analytical considerations based…
One typical assumption in inverse reinforcement learning (IRL) is that human experts act to optimize the expected utility of a stochastic cost with a fixed distribution. This assumption deviates from actual human behaviors under ambiguity.…
We consider a generalization of the classical risk model when the premium intensity depends on the current surplus of an insurance company. All surplus is invested in the risky asset, the price of which follows a geometric Brownian motion.…
Starting with a likelihood or preference order on worlds, we extend it to a likelihood ordering on sets of worlds in a natural way, and examine the resulting logic. Lewis (1973) earlier considered such a notion of relative likelihood in the…
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…
Prospect theory is widely viewed as the best available descriptive model of how people evaluate risk in experimental settings. According to prospect theory, people are risk-averse with respect to gains and risk-seeking with respect to…
This paper studies optimal insurance design under asymmetric information in a Stackelberg framework, where a monopolistic insurer faces uncertainty about both the insured's risk attitude, captured by a risk-aversion parameter, and the…
Invariant Causal Prediction (Peters et al., 2016) is a technique for out-of-distribution generalization which assumes that some aspects of the data distribution vary across the training set but that the underlying causal mechanisms remain…
We propose a novel class of convex risk measures, based on the concept of the Fr\'echet mean, designed in order to handle uncertainty which arises from multiple information sources regarding the risk factors of interest. The proposed risk…
We show that risk-aware behaviors in demand response originate from superquadratic state-dependent cost functions and price uncertainty with skewed distributions. We obtain such results through developing a novel theoretical demand response…
Empirical evidence shows that wealthy households have substantially higher saving rates and markedly lower marginal propensity to consume (MPC) than other groups. Existing theory cannot account for this pattern unless under restrictive…
The utility-based shortfall risk (SR) measure introduced by Folmer and Schied [15] has been recently extended by Mao and Cai [29] to cumulative prospect theory (CPT) based SR in order to better capture a decision maker's utility/risk…
This paper examines optimal risk sharing for empirically realistic risk attitudes, providing results on Pareto optimality, competitive equilibria, utility frontiers, and the first and second theorems of welfare. Contrary to common…
We investigate models of the life annuity insurance when the company invests its reserve into a risky asset with price following a geometric Brownian motion. Our main result is an exact asymptotic of the ruin probabilities for the case of…
We present extensive evidence that ``risk premium'' is strongly correlated with tail-risk skewness but very little with volatility. We introduce a new, intuitive definition of skewness and elicit an approximately linear relation between the…
We analyze the limiting behavior of the risk premium associated with the Pareto optimal risk sharing contract in an infinitely expanding pool of risks under a general class of law-invariant risk measures encompassing rank-dependent utility…
In economic analysis, rational decision-makers often take actions to reduce their risk exposure. These actions include purchasing market insurance and implementing prevention measures to modify the shape of the loss distribution. Under the…
We introduce the concept of partial law invariance, generalizing the concepts of law invariance and probabilistic sophistication widely used in decision theory, as well as statistical and financial applications. This new concept is…
We propose a multivariate extension of Yaari's dual theory of choice under risk. We show that a decision maker with a preference relation on multidimensional prospects that preserves first order stochastic dominance and satisfies…