Related papers: Risk aversion in economic transactions
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…
Motivated by the recently launched mobile data trading markets (e.g., China Mobile Hong Kong's 2nd exChange Market), in this paper we study the mobile data trading problem under the future data demand uncertainty. We introduce a…
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…
Gambles are random variables that model possible changes in monetary wealth. Classic decision theory transforms money into utility through a utility function and defines the value of a gamble as the expectation value of utility changes.…
The construction of an efficient portfolio with a good level of return and minimal risk depends on selecting the optimal combination of stocks. This paper introduces a novel decision-making framework for stock selection based on fractional…
Humans exhibit irrational decision-making patterns in response to environmental triggers, such as experiencing an economic loss or gain. In this paper we investigate whether algorithms exhibit the same behavior by examining the observed…
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…
An investor's risk aversion is assumed to tend to infinity. In a fairly general setting, we present conditions ensuring that the respective utility indifference prices of a given contingent claim converge to its super replication price.
We present a theory of expected utility with state-dependent linear utility functions for monetary returns, that incorporates the possibility of loss-aversion. Our results relate to first order stochastic dominance, mean-preserving spread,…
We apply the maximum entropy principle to economic systems in equilibrium and find the density function for the market's wealth. This is the same as price density which is used for insurance pricing. The risk aversion parameter of the agent…
We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled…
In the context of understanding the nature of the risk transformation process of the financial system we propose an iterative risk-trading game between several agents who build their trading strategies based on a general utility setting.…
Stochastic multi-armed bandits solve the Exploration-Exploitation dilemma and ultimately maximize the expected reward. Nonetheless, in many practical problems, maximizing the expected reward is not the most desirable objective. In this…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
Accuracy of economic theories and efficiency of economic policy strictly depend on the choice of the economic variables and processes mostly liable for description of economic reality. That states the general problem of assessment of any…
We introduce an equilibrium asset pricing model, which we build on the relationship between a novel risk measure, the Expected Downside Risk (EDR) and the expected return. On the one hand, our proposed risk measure uses a nonparametric…
We introduce a new paradigm for risk sharing that generalizes earlier models based on discrete agents and extends them to allow for sharing risk within a continuum of agents. Agents are represented by points of a measure space and have…
We develop efficient algorithms to construct utility maximizing mechanisms in the presence of risk averse players (buyers and sellers) in Bayesian settings. We model risk aversion by a concave utility function, and players play…
We continue the analysis of quantum-like description of market phenomena and economics. We show that it is possible to define a risk inclination operator acting in some Hilbert space that has a lot of common with quantum description of the…
Sequences of repeated gambles provide an experimental tool to characterize the risk preferences of humans or artificial decision-making agents. The difficulty of this inference depends on factors including the details of the gambles offered…