Third-Order Risk Preferences and Cumulative Prospect Theory PDF Download

Author: Michael Borß
Publisher: BoD – Books on Demand
ISBN: 384410500X
Category : Business & Economics
Languages : en
Pages : 250

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Book Description
There is broad theoretical and empirical evidence that investors exhibit a preference for skewness. However, there is little research regarding the extent to which individuals really favor positive skewness in individual decision making. In this dissertation, a controlled laboratory experiment is used to test for skewness preferences and prudence – a broader third-order risk preference that is closely linked to skewness preferences. Skewness and prudence preferences are further analyzed both within an Expected Utility Theory framework as well as with Cumulative Prospect Theory. For this, a sound experimental setup is used that also excludes any potentially distortionary effects from loss aversion. This dissertation therefore contributes to better understanding of individual risk preferences and other impact factors, such as a more “rational” vs. a more “intuitive” decision making process in individual decision making.

Author: Michael I.C. Nwogugu
Publisher: Springer Nature
ISBN: 1137447044
Category : Business & Economics
Languages : en
Pages : 864

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Book Description
Most research about financial stability and sustainable growth focuses on the financial sector and macroeconomics and neglects the real sector, microeconomics and psychology issues. Real-sector and financial-sectors linkages are increasing and are a foundation of economic/social/environmental/urban sustainability, given financial crises, noise, internet, “transition economics”, disintermediation, demographics and inequality around the world. Within complex systems theory framework, this book analyses some multi-sided mechanisms and risk-perception that can have symbiotic relationships with financial stability, systemic risk and/or sustainable growth. Within the context of Regret Minimization, MN-Transferable Utility and WTAL, new theories-of-the-firm are developed that consider sustainable growth, price stability, globalization, financial stability and birth-to-death evolutions of firms. This book introduces new behaviour theories pertaining to real estate and intangibles, which can affect the evolutions of risk-taking and risk perception within organizations and investment entities. The chapters address elements of the dilemma of often divergent risk perceptions of, and risk-taking by corporate executives, regulators and investment managers.

Author: Stefan Felder
Publisher: Springer
ISBN: 3662534320
Category : Business & Economics
Languages : en
Pages : 262

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Book Description
This textbook offers a comprehensive analysis of medical decision making under uncertainty by combining Test Information Theory with Expected Utility Theory. The book shows how the parameters of Bayes’ theorem can be combined with a value function of health states to arrive at informed test and treatment decisions. The authors distinguish between risk-neutral, risk-averse and prudent decision makers and demonstrate the effects of risk preferences on physicians’ decisions. They analyze individual tests, multiple tests and endogenous tests where the test outcome is chosen by the decision maker. Moreover, the topic is examined in the context of health economics by introducing a trade-off between enjoying health and consuming other goods, so that the extent of treatment and thus the potential improvement in the patient’s health becomes endogenous. Finally, non-expected utility models of choice under risk and uncertainty (i.e. ambiguity) are presented. While these models can explain observed test and treatment decisions, they are not suitable for normative analyses aimed at providing guidance on medical decision making.

Author: Mark Machina
Publisher: Newnes
ISBN: 0444536868
Category : Business & Economics
Languages : en
Pages : 897

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Book Description
The need to understand the theories and applications of economic and finance risk has been clear to everyone since the financial crisis, and this collection of original essays proffers broad, high-level explanations of risk and uncertainty. The economics of risk and uncertainty is unlike most branches of economics in spanning from the individual decision-maker to the market (and indeed, social decisions), and ranging from purely theoretical analysis through individual experimentation, empirical analysis, and applied and policy decisions. It also has close and sometimes conflicting relationships with theoretical and applied statistics, and psychology. The aim of this volume is to provide an overview of diverse aspects of this field, ranging from classical and foundational work through current developments. - Presents coherent summaries of risk and uncertainty that inform major areas in economics and finance - Divides coverage between theoretical, empirical, and experimental findings - Makes the economics of risk and uncertainty accessible to scholars in fields outside economics

Author: Emmanuel Jurczenko
Publisher: John Wiley & Sons
ISBN: 0470057998
Category : Business & Economics
Languages : en
Pages : 258

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Book Description
While mainstream financial theories and applications assume that asset returns are normally distributed and individual preferences are quadratic, the overwhelming empirical evidence shows otherwise. Indeed, most of the asset returns exhibit “fat-tails” distributions and investors exhibit asymmetric preferences. These empirical findings lead to the development of a new area of research dedicated to the introduction of higher order moments in portfolio theory and asset pricing models. Multi-moment asset pricing is a revolutionary new way of modeling time series in finance which allows various degrees of long-term memory to be generated. It allows risk and prices of risk to vary through time enabling the accurate valuation of long-lived assets. This book presents the state-of-the art in multi-moment asset allocation and pricing models and provides many new developments in a single volume, collecting in a unified framework theoretical results and applications previously scattered throughout the financial literature. The topics covered in this comprehensive volume include: four-moment individual risk preferences, mathematics of the multi-moment efficient frontier, coherent asymmetric risks measures, hedge funds asset allocation under higher moments, time-varying specifications of (co)moments and multi-moment asset pricing models with homogeneous and heterogeneous agents. Written by leading academics, Multi-moment Asset Allocation and Pricing Models offers a unique opportunity to explore the latest findings in this new field of research.

Author: Aurora García-Gallego
Publisher: Frontiers Media SA
ISBN: 2889452360
Category : Decision making
Languages : en
Pages : 234

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Book Description
Psychologists studying cognitive processes and personality have increasingly benefited from the wealth of theory, methodology, and decision making paradigms used in economics and game theory. Similarly, for the economists, personality traits and basic cognitive processes offer a set of coherent explanatory constructs in economic behavior. Given the debate on preference invariance and behavioral consistency across contexts and domains, the papers in this topic shed light on the existence and effect of stable sets of idiosyncratic features on economic decision-making. While the effects of personality and cognition on economic decisions remain under-explored, the papers contributed in this topic offer more than a stimulus for further research. The general message could be that personality and cognitive processes offer the stable idiosyncratic ground on which individual decisions are made.

Author: Georges Dionne
Publisher: Springer Science & Business Media
ISBN: 1461401550
Category : Business & Economics
Languages : en
Pages : 1133

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Book Description
This new edition of the Handbook of Insurance reviews the last forty years of research developments in insurance and its related fields. A single reference source for professors, researchers, graduate students, regulators, consultants and practitioners, the book starts with the history and foundations of risk and insurance theory, followed by a review of prevention and precaution, asymmetric information, risk management, insurance pricing, new financial innovations, reinsurance, corporate governance, capital allocation, securitization, systemic risk, insurance regulation, the industrial organization of insurance markets and other insurance market applications. It ends with health insurance, longevity risk, long-term care insurance, life insurance financial products and social insurance. This second version of the Handbook contains 15 new chapters. Each of the 37 chapters has been written by leading authorities in risk and insurance research, all contributions have been peer reviewed, and each chapter can be read independently of the others.

Author: Jean-Paul Chavas
Publisher: Elsevier
ISBN: 0080516335
Category : Business & Economics
Languages : en
Pages : 257

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Book Description
The objective of Risk Analysis in Theory and Practice is to present this analytical framework and to illustrate how it can be used in the investigation of economic decisions under risk. In a sense, the economics of risk is a difficult subject: it involves understanding human decisions in the absence of perfect information. How do we make decisions when we do not know some of events affecting us? The complexities of our uncertain world and of how humans obtain and process information make this difficult. In spite of these difficulties, much progress has been made. First, probability theory is the corner stone of risk assessment. This allows us to measure risk in a fashion that can be communicated among decision makers or researchers. Second, risk preferences are now better understood. This provides useful insights into the economic rationality of decision making under uncertainty. Third, over the last decades, good insights have been developed about the value of information. This helps better understand the role of information in human decision making and this book provides a systematic treatment of these issues in the context of both private and public decisions under uncertainty. - Balanced treatment of conceptual models and applied analysis - Considers both private and public decisions under uncertainty - Website presents application exercises in Excel

Author: Geir B. Asheim
Publisher: Springer Science & Business Media
ISBN: 9780387262352
Category : Business & Economics
Languages : en
Pages : 230

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Book Description
The Consistent Preferences Approach to Deductive Reasoning in Games presents, applies, and synthesizes what my co-authors and I have called the 'consistent preferences' approach to deductive reasoning in games. Briefly described, this means that the object of the analysis is the ranking by each player of his own strategies, rather than his choice. The ranking can be required to be consistent (in different senses) with his beliefs about the opponent's ranking of her strategies. This can be contrasted to the usual `rational choice' approach where a player's strategy choice is (in different senses) rational given his beliefs about the opponent's strategy choice. Our approach has turned out to be fruitful for providing epistemic conditions for backward and forward induction, and for defining or characterizing concepts like proper, quasi-perfect and sequential rationalizability. It also facilitates the integration of game theory and epistemic analysis with the underlying decision-theoretic foundation.

Author: Michael I. C. Nwogugu
Publisher: Routledge
ISBN: 1317146557
Category : Business & Economics
Languages : en
Pages : 275

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Book Description
Traditional research about Financial Stability and Sustainable Growth typically omits Earnings Management (as a broad class of misconduct), Complex Systems Theory, Mechanism Design Theory, Public Health, psychology issues, and the externalities and psychological effects of Fintech. Inequality, Environmental Pollution, Earnings Management opportunities, the varieties of complex Financial Instruments, Fintech, Regulatory Fragmentation, Regulatory Capture and real-financial sector-linkages are growing around the world, and these factors can have symbiotic relationships. Within Complex System theory framework, this book analyzes these foregoing issues, and introduces new behaviour theories, Enforcement Dichotomies, and critiques of models, regulations and theories in several dimensions. The issues analyzed can affect markets, and evolutions of systems, decision-making, "nternal Markets and risk-perception within government regulators, operating companies and investment entities, and thus they have Public Policy implications. The legal analysis uses applicable US case-law and statutes (which have been copied by many countries, and are similar to those of many common-law countries). Using Qualitative Reasoning, Capital Dynamics Theory (a new approach introduced in this book), Critical Theory and elements of Mechanism Design Theory, the book aims to enhance cross-disciplinary analysis of the above-mentioned issues; and to help researchers build better systems/Artificial-Intelligence/mathematical models in Financial Stability, Portfolio Management, Policy-Analysis, Asset Pricing, Contract Theory, Enforcement Theory and Fraud Detection. The primary audience for this book consists of university Professors, PHD students and PHD degree-holders (in industries, government agencies, financial services companies and research institutes). The book can be used as a primary or supplementary textbook for graduate courses in Regulation; Capital Markets; Law & Economics, International Political Economy and or Mechanism Design (Applied Math, Operations Research, Computer Science or Finance).