Related papers: Risk aversion in economic transactions
Numerous online services are data-driven: the behavior of users affects the system's parameters, and the system's parameters affect the users' experience of the service, which in turn affects the way users may interact with the system. For…
This paper examines optimal risk sharing for empirically realistic risk attitudes, providing results on Pareto optimality, competitive equilibria, utility frontiers, and the first and second theorems of welfare. Contrary to common…
We propose a mathematical model of momentum risk-taking, which is essentially real-time risk management focused on short-term volatility of stock markets. Its implementation, our fully automated momentum equity trading system presented…
We study a credit risk model which captures effects of economic interactions on a firm's default probability. Economic interactions are represented as a functionally defined graph, and the existence of both cooperative, and competitive,…
Automation significantly alters human behavior, particularly risk-taking. Previous researches have paid limited attention to the underlying characteristics of automation and their mechanisms of influence on risk-taking. This study…
Simple agent based exchange models are a commonplace in the study of wealth distribution of artificial societies. Generally, each agent is characterized by its wealth and by a risk-aversion factor, and random exchanges between agents allow…
This paper introduces a new type of risk measures, namely regime switching entropic risk measures, and study their applicability through simulations. The state of the economy is incorporated into the entropic risk formulation by using a…
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…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
We consider a simple model of a closed economic system where the total money is conserved and the number of economic agents is fixed. In analogy to statistical systems in equilibrium, money and the average money per economic agent are…
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…
Classical reinforcement learning (RL) techniques are generally concerned with the design of decision-making policies driven by the maximisation of the expected outcome. Nevertheless, this approach does not take into consideration the…
Possibilistic risk theory starts from the hypothesis that risk is modelled by fuzzy numbers. In particular, in a possibilistic portfolio choice problem, the return of a risky asset will be a fuzzy number. The expected utility operators have…
Autonomous systems can substantially enhance a human's efficiency and effectiveness in complex environments. Machines, however, are often unable to observe the preferences of the humans that they serve. Despite the fact that the human's and…
One approach to the analysis of stochastic fluctuations in market prices is to model characteristics of investor behaviour and the complex interactions between market participants, with the aim of extracting consequences in the aggregate.…
We present an analytical model to study the role of expectation feedbacks and overlapping portfolios on systemic stability of financial systems. Building on [Corsi et al., 2016], we model a set of financial institutions having Value at Risk…
We study the problem of option pricing and hedging strategies within the frame-work of risk-return arguments. An economic agent is described by a utility function that depends on profit (an expected value) and risk (a variance). In the…
Assistive multi-armed bandit problems can be used to model team situations between a human and an autonomous system like a domestic service robot. To account for human biases such as the risk-aversion described in the Cumulative Prospect…
Despite the availability of very detailed data on financial market, agent-based modeling is hindered by the lack of information about real trader behavior. This makes it impossible to validate agent-based models, which are thus…
Decision under risk and uncertainty has been attracting attention in neuroeconomics and neuroendocrinology of decision-making. This paper demonstrated that the neurotransmitter receptor theory-based value (utility) function can account for…