Related papers: Outside options and risk attitude
We are living in an uncertain and dynamically changing world, where optimal decision-making under uncertainty is directly linked to the survival of species. However, evolutionary selection pressures that shape value-based decision-making…
We study the tradeoff between fundamental risk and time. A time-constrained agent has to solve a problem. She dynamically allocates effort between implementing a risky initial idea and exploring alternatives. Discovering an alternative…
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…
This paper investigates a novel behavioral feature of recursive preferences: aversion to risks that persist over time, or simply \textit{correlation aversion}. Greater persistence provides information about future consumption but reduces…
Most people are risk-averse (risk-seeking) when they expect to gain (lose). Based on a generalization of ``expected utility theory'' which takes this into account, we introduce an automaton mimicking the dynamics of economic operations.…
To find a trade-off between profitability and prudence, financial practitioners need to choose appropriate risk measures. Two key points are: Firstly, investors' risk attitudes under uncertainty conditions should be an important reference…
Cooperation is a key driver of human social progress. Studies of the evolution of cooperation typically assume a deterministic outcome for social interactions. But in real-world social interactions, interaction outcomes are often subject to…
Many biological, psychological and economic experiments have been designed where an organism or individual must choose between two options that have the same expected reward but differ in the variance of reward received. In this way,…
We study an outcome of a vote in a population of voters exposed to an externally applied bias in favour of one of two potential candidates. The population consists of ordinary individuals, that are in majority and tend to align their…
This paper develops a model of reference-dependent assessment of subjective beliefs in which loss-averse people optimally choose the expectation as the reference point to balance the current felicity from the optimistic anticipation and the…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
This paper studies a risk-sensitive decision-making problem under uncertainty. It considers a decision-making process that unfolds over a fixed number of stages, in which a decision-maker chooses among multiple alternatives, some of which…
People are influenced by the choices of others, a phenomenon observed across contexts in the social and behavioral sciences. Social influence can lock in an initial popularity advantage of an option over a higher quality alternative. Yet…
How do incentive levels affect strategic behaviour? We address this with an experiment that separately identifies own- and opponent-incentive effects in two dominance-solvable games that differ in strategic complexity. Higher own incentives…
Analyses of voting algorithms often overlook informational externalities shaping individual votes. For example, pre-polling information often skews voters towards candidates who may not be their top choice, but who they believe would be a…
Debt aversion can have severe adverse effects on financial decision-making. We propose a model of debt aversion, and design an experiment involving real debt and saving contracts, to elicit and jointly estimate debt aversion with…
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…
Risk aversion is a common behavior universal to humans and animals alike. Economists have traditionally defined risk preferences by the curvature of the utility function. Psychologists and behavioral economists also make use of concepts…
In choice under risk, there is a standard notion of 'less risk-averse than', due to Yaari (1969). In the theory of comparative statics, the single-crossing property is satisfied by all weighted averages of a family of single-crossing…
Experiments on decision making under uncertainty are known to display a classical pattern of risk aversion and risk seeking referred to as "fourfold pattern" (or "reflection effect") , but recent experiments varying the speed and order of…