Related papers: Absolute and Relative Ambiguity Attitudes
Risk aversion and insurance are two prominent and interconnected concepts in economics and finance. To explore their fundamental connection, we introduce risk-insurance parity, which associates various classes of insurance contracts with…
The idea of fully accepting statements when the evidence has rendered them probable enough faces a number of difficulties. We leave the interpretation of probability largely open, but attempt to suggest a contextual approach to full belief.…
We demonstrate that individual behaviors directed at the attainment of distinctiveness can in fact produce complete social conformity. We thus offer an unexpected generative mechanism for this central social phenomenon. Specifically, we…
Actual individual preferences are neither complete (=total) nor antisymmetric in general, so that at least every quasi-order must be an admissible input to a satisfactory choice rule. It is argued that the traditional notion of…
Abstract argumentation offers an appealing way of representing and evaluating arguments and counterarguments. This approach can be enhanced by a probability assignment to each argument. There are various interpretations that can be ascribed…
We develop a general theory of risk measures that determines the optimal amount of capital to raise and invest in a portfolio of reference traded securities in order to meet a pre-specified regulatory requirement. The distinguishing feature…
Agents' learning from feedback shapes economic outcomes, and many economic decision-makers today employ learning algorithms to make consequential choices. This note shows that a widely used learning algorithm, $\varepsilon$-Greedy, exhibits…
Nontransitive choices have long been an area of curiosity within economics. However, determining whether nontransitive choices represent an individual's preference is a difficult task since choice data is inherently stochastic. This paper…
This paper proposes a model of decision-making under uncertainty in which an agent is constrained in her cognitive ability to consider complex acts. We identify the complexity of an act according to the corresponding partition of state…
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…
Inspired by the recent literature on aggregation theory, we aim at relating the long range correlation of the stocks return volatility to the heterogeneity of the investors' expectations about the level of the future volatility. Based on a…
This paper analyses how risk-taking behaviour and preferences over consumption rank can emerge as a neutrally stable equilibrium when individuals face an anti-coordination task. If in an otherwise homogeneous society information about…
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…
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…
Relative belief inferences are shown to arise as Bayes rules or limiting Bayes rules. These inferences are invariant under reparameterizations and possess a number of optimal properties. In particular, relative belief inferences are based…
This paper discusses a novel explanation for asymmetric volatility based on the anchoring behavioral pattern. Anchoring as a heuristic bias causes investors focusing on recent price changes and price levels, which two lead to a belief in…
This paper studies a fundamental mechanism of how to detect a conflict between arguments given sentiments regarding acceptability of the arguments. We introduce a concept of the inverse problem of the abstract argumentation to tackle the…
Over time, there have hen refinements in the way that probability distributions are used for representing beliefs. Models which rely on single probability distributions depict a complete ordering among the propositions of interest, yet…
We show that disentangling sentiment-induced biases from fundamental expectations significantly improves the accuracy and consistency of probabilistic forecasts. Using data from 1994 to 2017, we analyze 15 stochastic models and…
Comonotonicity (``same variation'') of random variables minimizes hedging possibilities and has been widely used, e.g., in Gilboa and Schmeidler's ambiguity models. This paper investigates anticomonotonicity (``opposite variation'';…