Related papers: Calibrating the Subjective
Ramsey (1926) sketches a proposal for measuring the subjective probabilities of an agent by their observable preferences, assuming that the agent is an expected utility maximizer. I show how to extend the spirit of Ramsey's method to a…
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…
Diversification is the typical investment strategy of risk-averse agents. However, non-diversified positions that allocate all resources to a single asset, state of the world or revenue stream are common too. We show that whenever finitely…
Modeling the purposeful behavior of imperfect agents from a small number of observations is a challenging task. When restricted to the single-agent decision-theoretic setting, inverse optimal control techniques assume that observed behavior…
We derive a closed-form expression capturing the degree of Relative Risk Aversion (RRA) of investors for non-"fair" lotteries. We argue that our formula is superior to earlier methods that have been proposed, as it is a function of only…
We provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in a classic expected return maximization problem. For what we call the infimum of expectations class of risk measures, we show…
We show in a simulation when economic agents are subject to evolution (random change and selection based on the success in the estimation of the result of the gamble) they acquire risk aversive behavior. This behavior appears in the form of…
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…
Modeling the purposeful behavior of imperfect agents from a small number of observations is a challenging task. When restricted to the single-agent decision-theoretic setting, inverse optimal control techniques assume that observed behavior…
Aggregating risks from multiple sources can be complex and demanding, and decision makers usually adopt heuristics to simplify the evaluation process. This paper axiomatizes two closed related and yet different heuristics, narrow bracketing…
I study robust comparative statics for risk-averse subjective expected utility (SEU) maximizers. Starting with a finite menu of actions totally ordered by sensitivity to risk, I identify the transformations of her menu that lead a…
We revisit Machina's local utility as a tool to analyze attitudes to multivariate risks. We show that for non-expected utility maximizers choosing between multivariate prospects, aversion to multivariate mean preserving increases in risk is…
By analysing the restrictions that ensure the existence of capital market equilibrium, we show that the coefficient of relative risk aversion and the subjective discount factor cannot be high simultaneously as they are supposed to be to…
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…
An analyst observes an agent take a sequence of actions. The analyst does not have access to the agent's information and ponders whether the observed actions could be justified through a rational Bayesian model with a known utility…
This article's aim is to provide the solution to the equity premium puzzle without using calibrated values. Calibrated values of subjective time discount factor were used in my prior derived models because 4 variables were determined from 3…
This note will extend the research presented in Brown & Rogers (2009) to the case of CRRA agents. We consider the model outlined in that paper in which agents had diverse beliefs about the dividends produced by a risky asset. We now assume…
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…
Robust planning in interactive scenarios requires predicting the uncertain future to make risk-aware decisions. Unfortunately, due to long-tail safety-critical events, the risk is often under-estimated by finite-sampling approximations of…
We represent preferences that exhibit absolute or relative attitudes towards ambiguity without assuming convexity of preferences. Our analysis is motivated by the recent experimental evidence by Baillon and Placido (2019) indicating that…