Related papers: Choquet rank-dependent utility with an exogenous u…
Expected Utility: Algebraic Expected Utility In this paper, we provide two axiomatizations of algebraic expected utility, which is a particular generalized expected utility, in a von Neumann-Morgenstern setting, i.e. uncertainty…
We analyze a simple macroeconomic model where rational inflation expectations is replaced by a boundedly rational, and genuinely sticky, response to changes in the actual inflation rate. The stickiness is introduced in a novel way using a…
Credit ratings are widely used by investors as a screening device. We introduce and study several natural notions of risk consistency that promote prudent investment decisions in the framework of Choquet rating criteria. Three closely…
We study portfolio selection in a complete continuous-time market where the preference is dictated by the rank-dependent utility. As such a model is inherently time inconsistent due to the underlying probability weighting, we study the…
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…
Incomplete preferences provide the epistemic foundation for models of imprecise subjective probabilities and utilities that are used in robust Bayesian analysis and in theories of bounded rationality. This paper presents a simple…
We study a discrete-time consumption-based capital asset pricing model under expectations-based reference-dependent preferences. More precisely, we consider an endowment economy populated by a representative agent who derives utility from…
We extend well-known comparative results under expected utility to models of non-expected utility by providing novel conditions on local utility functions. We illustrate how our results parallel, and are distinct from, existing results for…
We show that under plausible levels of background risk, no theory of choice under risk -- such as expected utility theory, prospect theory, or rank dependent utility -- can simultaneously satisfy the following three economic postulates: (i)…
This paper studies a robust utility maximization problem for intractable claims under distributional ambiguity, where the distribution of the claim cannot be inferred from market information and its dependence with tradable assets is…
There are many kinds of exogeneity assumptions. How should researchers choose among them? When exogeneity is imposed on an unobservable like a potential outcome, we argue that the form of exogeneity should be chosen based on the kind of…
This paper studies an $\alpha$-robust utility maximization problem where an investor faces an intractable claim -- an exogenous contingent claim with known marginal distribution but unspecified dependence structure with financial market…
Ranking data arises in a wide variety of application areas but remains difficult to model, learn from, and predict. Datasets often exhibit multimodality, intransitivity, or incomplete rankings---particularly when generated by humans---yet…
Economists often estimate economic models on data and use the point estimates as a stand-in for the truth when studying the model's implications for optimal decision-making. This practice ignores model ambiguity, exposes the decision…
We study a sufficiently general regret criterion for choosing between two probabilistic lotteries. For independent lotteries, the criterion is consistent with stochastic dominance and can be made transitive by a unique choice of the regret…
We study a general robust utility maximization problem in a discrete-time frictionless market. The investor is assumed to have a possibly infinite, random, nonconcave, and nondecreasing utility function defined on the whole real line. She…
In incomplete financial markets, there exists a set of equivalent martingale measures (or risk-neutral probabilities) in an arbitrage-free pricing of the contingent claims. Minimax expectation is closely related to the $g$-expectation which…
In this paper we study a robust utility maximization problem in continuous time under model uncertainty. The model uncertainty is governed by a continuous semimartingale with uncertain local characteristics. Here, the differential…
The random utility model (RUM, McFadden and Richter, 1990) has been the standard tool to describe the behavior of a population of decision makers. RUM assumes that decision makers behave as if they maximize a rational preference over a…
In this paper, we establish a mathematical duality between utility transforms and probability distortions. These transforms play a central role in decision under risk by forming the foundation for the classic theories of expected utility,…