Related papers: Outside options and risk attitude
We introduce a way to compare actions in decision problems. One action is safer than another if the set of beliefs at which the decision-maker prefers the safer action expands as the decision-maker becomes more risk averse. We provide a…
We show that if the exposure and the outcome affect the selection indicator in the same direction and have non-positive interaction on the risk difference, risk ratio or odds ratio scale, the exposure-outcome odds ratio in the selected…
Portfolio diversification is a cornerstone of modern finance, while risk aversion is central to decision theory; both concepts are long-standing and foundational. We investigate their connections by studying how different forms of…
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…
Measuring beliefs about natural disasters is challenging. Deep out-of-the-money options allow investors to hedge at a range of strikes and time horizons, thus the 3-dimensional surface of firm-level option prices provides information on (i)…
Models for epidemic spread typically account for variable risk factors but do not account for the correlation between behavior and risk. Here we extend these models to account for such correlations. We find that a positive correlation…
We propose a decision-analytical approach to comparing the flexibility of decision situations from the perspective of a decision-maker who exhibits constant risk-aversion over a monetary value model. Our approach is simple yet seems to be…
Understanding the affective, cognitive and behavioural processes involved in risk taking is essential for treatment and for setting environmental conditions to limit damage. Using Temporal Difference Reinforcement Learning (TDRL) we…
The objective of this paper is to study the effect of travel time information on day-to-day driver route choice behavior. A real-world experimental study is designed to have participants repeatedly choose between two alternative routes for…
Take up of microcredit by the poor for investment in businesses or human capital turned out to be very low. We show that this could be explained by risk aversion, without relying on fixed costs or other forms of non-convexity in the…
The sensitivity to risk that most people (hence, financial operators) feel affects the dynamics of financial transactions. Here we present an approach to this problem based on a current generalization of Boltzmann-Gibbs statistical…
Different models of capital exchange among economic agents have been proposed recently trying to explain the emergence of Pareto's wealth power law distribution. One important factor to be considered is the existence of risk aversion. In…
Flexibility options, such as demand response, energy storage and interconnection, have the potential to reduce variation in electricity prices between different future scenarios, therefore reducing investment risk. Moreover, investment in…
The rapid growth of e-commerce has made people accustomed to shopping online. Before making purchases on e-commerce websites, most consumers tend to rely on rating scores and review information to make purchase decisions. With this…
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…
Decision makers often opt for the deferral outside option when they find it difficult to make an active choice. Contrary to existing logit models with an outside option where the latter is assigned a fixed value exogenously, this paper…
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…
We examine the evolutionary basis for risk aversion with respect to aggregate risk. We study populations in which agents face choices between alternatives with different levels of aggregate risk. We show that the choices that maximize the…
This paper empirically analyzes how individual characteristics are associated with risk aversion, loss aversion, time discounting, and present bias. To this end, we conduct a large-scale demographically representative survey across eight…
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…