Expected utility hypothesis ≈ Expected utility hypothesis
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Risk-Taking Behavior in the Wake of Natural Disasters Open
We investigate whether experiencing a natural disaster affects risk-taking behavior. We conduct standard risk games (using real money) with randomly selected individuals in rural Indonesia. We find that individuals who recently suffered a …
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Are Risk Preferences Stable? Open
It is ultimately an empirical question whether risk preferences are stable over time. The evidence comes from diverse strands of literature, covering the stability of risk preferences in panel data over shorter periods of time, life-cycle …
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Distributionally Robust Optimization: A Review Open
The concepts of risk-aversion, chance-constrained optimization, and robust optimization have developed significantly over the last decade. Statistical learning community has also witnessed a rapid theoretical and applied growth by relying …
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Replicating patterns of prospect theory for decision under risk Open
Prospect theory is among the most influential frameworks in behavioural science, specifically in research on decision-making under risk. Kahneman and Tversky's 1979 study tested financial choices under risk, concluding that such judgements…
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When do we need more data? A primer on calculating the value of information for applied ecologists Open
Summary Applied ecologists continually advocate further research, under the assumption that obtaining more information will lead to better decisions. Value of information (VoI) analysis can be used to quantify how additional information ma…
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The influence of risk perception, risk tolerance, overconfidence, and loss aversion towards investment decision making Open
This study aims to examine the effect of risk perception, risk tolerance, overconfidence, and loss aversion on investment decision making. The sample in this study were workers in Surabaya and Jombang, East Java. There were 400 respondents…
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Risk Sharing and Contagion in Networks Open
We investigate the trade-off between the risk-sharing gains enjoyed by more interconnected firms and the costs resulting from an increased risk exposure. We find that when the shock distribution displays "fat" tails, extreme segmentation i…
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On the Relationship between Cognitive Ability and Risk Preference Open
This paper will focus on the relationship between cognitive ability and decision-making under risk and uncertainty. Taken as a whole, this research indicates that cognitive ability is associated with risk-taking behavior in various context…
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Overrepresentation of extreme events in decision making reflects rational use of cognitive resources. Open
People's decisions and judgments are disproportionately swayed by improbable but extreme eventualities, such as terrorism, that come to mind easily. This article explores whether such availability biases can be reconciled with rational inf…
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Adolescents display distinctive tolerance to ambiguity and to uncertainty during risky decision making Open
Although actuarial data indicate that risk-taking behavior peaks in adolescence, laboratory evidence for this developmental spike remains scarce. One possible explanation for this incongruity is that in the real world adolescents often hav…
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Integrating Household Risk Mitigation Behavior in Flood Risk Analysis: An Agent‐Based Model Approach Open
Recent studies showed that climate change and socioeconomic trends are expected to increase flood risks in many regions. However, in these studies, human behavior is commonly assumed to be constant, which neglects interaction and feedback …
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The Impact of Violence on Individual Risk Preferences: Evidence from a Natural Experiment Open
We estimate the impact of Kenya's postelection crisis on individual risk preferences. The crisis interrupted a longitudinal survey of more than five thousand Kenyan youth, creating plausibly exogenous variation in exposure to civil conflic…
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Can Conspiracy Beliefs Be Beneficial? Longitudinal Linkages Between Conspiracy Beliefs, Anxiety, Uncertainty Aversion, and Existential Threat Open
Research suggests that conspiracy beliefs are adopted because they promise to reduce anxiety, uncertainty, and threat. However, little research has investigated whether conspiracy beliefs actually fulfill these promises. We conducted two l…
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Modeling Risk Aversion in Economics Open
To capture the risk-aversion intuition, the standard approach in economics has been to utilize the model of expected utility, in which risk aversion derives from diminishing marginal utility for wealth (or diminishing marginal utility for …
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The Psychological and Neural Basis of Loss Aversion Open
Loss aversion is a central element of prospect theory, the dominant theory of decision making under uncertainty for the past four decades, and refers to the overweighting of potential losses relative to equivalent gains, a critical determi…
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Testing Ambiguity Models through the Measurement of Probabilities for Gains and Losses Open
This paper reports on two experiments that test the descriptive validity of ambiguity models using a natural source of uncertainty (the evolution of stock indices) and both gains and losses. We observed violations of probabilistic sophisti…
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Retrospectives: How Economists Came to Accept Expected Utility Theory: The Case of Samuelson and Savage Open
Expected utility theory dominated the economic analysis of individual decision-making under risk from the early 1950s to the 1990. Among the early supporters of the expected utility hypothesis in the von Neumann–Morgenstern version were Mi…
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Moderating Loss Aversion: Loss Aversion Has Moderators, But Reports of its Death are Greatly Exaggerated Open
Loss aversion, the principle that losses impact decision making more than equivalent gains, is a fundamental idea in consumer behavior and decision making, though its existence has recently been called into question. Across five unique sam…
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Do Politicians Take Risks Like the Rest of Us? An Experimental Test of Prospect Theory Under MPs Open
Political psychologists have been quick to use prospect theory in their work, realizing its potential for explaining decisions under risk. Applying prospect theory to political decision‐making is not without problems, though, and here we a…
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Experimental Development of Sealed-Bid Auction Theory; Calibrating Controls for Risk Aversion Open
This article offers a brief survey of bidding theory in high price auctions, of experimental studies of behavior in such auctions, and of the interplay between the design and results of the experiments and efforts to further develop the th…
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The Risk-Adjusted Carbon Price Open
The social cost of carbon is the expected present value of damages from emitting one ton of carbon today. We use perturbation theory to derive an approximate tractable expression for this cost adjusted for climatic and economic risk. We al…
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Subjective value representations during effort, probability and time discounting across adulthood Open
Every day, humans make countless decisions that require the integration of information about potential benefits (i.e. rewards) with other decision features (i.e. effort required, probability of an outcome or time delays). Here, we examine …
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Emotion and decision-making under uncertainty: Physiological arousal predicts increased gambling during ambiguity but not risk. Open
Uncertainty, which is ubiquitous in decision-making, can be fractionated into known probabilities (risk) and unknown probabilities (ambiguity). Although research has illustrated that individuals more often avoid decisions associated with a…
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Climate risk and state-contingent technology adoption: shocks, drought tolerance and preferences Open
Climate risk represents an increasing threat to poor and vulnerable farmers in drought-prone areas of Africa. This study assesses the maize adoption responses of food insecure farmers in Malawi, where drought-tolerant (DT) maize was recent…
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On the Foundations of Decision Theory Open
Bayesian decision theory was invented by Leonard Savage, who is on record as saying that it would be “preposterous” and “utterly ridiculous” to apply his theory except in a small world. But modern Bayesians proceed as though Savage’s theor…
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Accounting for risk aversion, income distribution and social welfare in cost‐benefit analysis for flood risk management Open
Most cost‐benefit analysis ( CBA ) textbooks and guidelines recognize the objective of CBAs to improve social welfare—a function of well‐being of all individuals, conceptualized by utility. However, today's common practice to value flood r…
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Macro Asset Allocation with Social Impact Investments Open
Using a unique dataset of 50 listed companies that meet the majority of the OECD requirements for social impact investments, we construct a social impact finance stock index and investigate how investing in social impact firms can contribu…
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Loss Aversion and Consumption Choice: Theory and Experimental Evidence Open
We analyze a consumer-choice model with price uncertainty, loss aversion, and expectation-based reference points. The implications of this model are tested in an experiment in which participants have to make a consumption choice between tw…
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Mechanism design with maxmin agents: Theory and an application to bilateral trade Open
This paper studies mechanism design when agents are maxmin expected utility maximizers. A first result gives a general necessary condition for a social choice rule to be implementable. The condition combines an inequality version of the st…
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Managing Catastrophic Climate Risks Under Model Uncertainty Aversion Open
We propose a robust risk management approach to deal with the problem of catastrophic climate change that incorporates both risk and model uncertainty. Using an analytical model of abatement, we show how aversion to model uncertainty influ…