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Author: Glenn W. Harrison Publisher: Emerald Group Publishing ISBN: 1837972702 Category : Business & Economics Languages : en Pages : 291
Book Description
Models of Risk Preferences collects studies that critically review alternatives to Expected Utility Theory from the perspective of experimental economics.
Author: Glenn W. Harrison Publisher: Emerald Group Publishing ISBN: 1837972702 Category : Business & Economics Languages : en Pages : 291
Book Description
Models of Risk Preferences collects studies that critically review alternatives to Expected Utility Theory from the perspective of experimental economics.
Author: Colin Andrew Small Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Models are often formulated to aid in decision-making. However, the details included or excluded are often determined with minimal examination of the effects. There is a tendency to make models more complex than merited. Yet, decision makers’ risk preferences are often ignored without considering the effect on recommendations. Additionally, modelers do not always understand the difference between preferences toward deterministic outcomes and risk preferences or the impact of modeling conflicting risk and deterministic preferences together in a single component. In this paper, I investigate the relationship between complexity and accuracy, using COVID-19 forecasting as a case study. I find our simple model is comparable in accuracy to highly publicized models, generating among the best-calibrated forecasts. This may be surprising, given the complexity of many high-profile models supported by large teams. However, it is consistent with research suggesting simple models perform very well in a variety of settings. Although utility functions are a fundamental component of decision analysis, they can assume many forms. For small decisions, the choice might not change the decision. But it can greatly affect recommendations for large decisions. There are qualitative recommendations on which functional form to use. But there is no quantitative recommendation relating size of uncertainties to choice of utility function. By maximizing error in certain equivalents when using different utility functions, this paper provides guidance into when to use different utility functions. Although decision makers should be approximately risk neutral for small problems, they are often “risk averse.” Rabin and Thaler showed utility functions modeling small-scale risk aversion result in absurd risk aversion for large uncertainties. They explain small-scale risk aversion is due to loss aversion, where pain from losses exceeds benefit from gains. But preferences for deterministic losses and gains is a deterministic preference and is not equivalent to risk preference. They argue loss aversion caused the observed behavior, yet modelled deterministic and risk preferences in a single factor. In this paper, I show modeling risk and deterministic preference separately can resolve Rabin’s Paradox, underscoring the need to explicitly model both when deterministic preferences can influence decision making or conflict with risk preferences
Author: Glenn W. Harrison Publisher: Emerald Group Publishing ISBN: 1837972680 Category : Business & Economics Languages : en Pages : 265
Book Description
Models of Risk Preferences collects studies that critically review alternatives to Expected Utility Theory from the perspective of experimental economics.
Author: Mark Machina Publisher: Newnes ISBN: 0444536868 Category : Business & Economics Languages : en Pages : 897
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: Jean-Paul Chavas Publisher: Elsevier ISBN: 0121706214 Category : Business & Economics Languages : en Pages : 258
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: Michelle Baddeley Publisher: Oxford University Press ISBN: 019107117X Category : Business & Economics Languages : en Pages : 169
Book Description
Traditionally economists have based their economic predictions on the assumption that humans are super-rational creatures, using the information we are given efficiently and generally making selfish decisions that work well for us as individuals. Economists also assume that we're doing the very best we can possibly do - not only for today, but over our whole lifetimes too. But increasingly the study of behavioural economics is revealing that our lives are not that simple. Instead, our decisions are complicated by our own psychology. Each of us makes mistakes every day. We don't always know what's best for us and, even if we do, we might not have the self-control to deliver on our best intentions. We struggle to stay on diets, to get enough exercise and to manage our money. We misjudge risky situations. We are prone to herding: sometimes peer pressure leads us blindly to copy others around us; other times copying others helps us to learn quickly about new, unfamiliar situations. This Very Short Introduction explores the reasons why we make irrational decisions; how we decide quickly; why we make mistakes in risky situations; our tendency to procrastination; and how we are affected by social influences, personality, mood and emotions. The implications of understanding the rationale for our own financial behaviour are huge. Behavioural economics could help policy-makers to understand the people behind their policies, enabling them to design more effective policies, while at the same time we could find ourselves assaulted by increasingly savvy marketing. Michelle Baddeley concludes by looking forward, to see what the future of behavioural economics holds for us. ABOUT THE SERIES: The Very Short Introductions series from Oxford University Press contains hundreds of titles in almost every subject area. These pocket-sized books are the perfect way to get ahead in a new subject quickly. Our expert authors combine facts, analysis, perspective, new ideas, and enthusiasm to make interesting and challenging topics highly readable.
Author: Levon Barseghyan Publisher: ISBN: Category : Languages : en Pages : 65
Book Description
We survey the literature on estimating risk preferences using field data. We concentrate our attention on studies in which risk preferences are the focal object and estimating their structure is the core enterprise. We review a number of models of risk preferences -- including both expected utility (EU) theory and non-EU models -- that have been estimated using field data, and we highlight issues related to identification and estimation of such models using field data. We then survey the literature, giving separate treatment to research that uses individual-level data (e.g., property insurance data) and research that uses aggregate data (e.g., betting market data). We conclude by discussing directions for future research.
Author: Daniel Friedman Publisher: Routledge ISBN: 1317821246 Category : Business & Economics Languages : en Pages : 152
Book Description
For several decades, the orthodox economics approach to understanding choice under risk has been to assume that each individual person maximizes some sort of personal utility function defined over purchasing power. This new volume contests that even the best wisdom from the orthodox theory has not yet been able to do better than supposedly naïve models that use rules of thumb, or that focus on the consumption possibilities and economic constraints facing the individual. The authors assert this by first revisiting the origins of orthodox theory. They then recount decades of failed attempts to obtain meaningful empirical validation or calibration of the theory. Estimated shapes and parameters of the "curves" have varied erratically from domain to domain (e.g., individual choice versus aggregate behavior), from context to context, from one elicitation mechanism to another, and even from the same individual at different time periods, sometimes just minutes apart. This book proposes the return to a simpler sort of scientific theory of risky choice, one that focuses not upon unobservable curves but rather upon the potentially observable opportunities and constraints facing decision makers. It argues that such an opportunities-based model offers superior possibilities for scientific advancement. At the very least, linear utility – in the presence of constraints - is a useful bar for the "curved" alternatives to clear.
Author: Glenn W. Harrison
Author: Glenn W. Harrison
Author: Colin Andrew Small
Author: Glenn W. Harrison
Author: Mark Machina
Author: Jean-Paul Chavas
Author: Michelle Baddeley
Author: Mark J. Machina
Author: Cary A. Deck
Author: Levon Barseghyan
Author: Daniel Friedman