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"Risk theory"
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Stability of risk preference measures: results from a field experiment on French farmers
We compare two different elicitation methods for measuring risk attitudes on a sample of French farmers. We consider the lottery tasks initially proposed by Holt and Laury (Econ Rev 92:1644–1655,
2002
) and by Eckel and Grossman (Evol Hum Behav 23:281–295,
2002
; J Econ Behav Org 68:1–7,
2008
). The main empirical result from this within-subject study is that risk preference measures are affected by the type of mechanism used. We first show that this risk preference instability can be related to non-expected utility preferences of farmers. Using a risk-taking psychometric questionnaire, we then demonstrate that risk preferences of farmers are context-dependent. This may be another explanation of the observed risk preference instability.
Journal Article
Testing for Prudence and Skewness Seeking
Numerous theoretical predictions such as precautionary saving or preventive behavior have been derived for prudent decision makers. Further, prudence can be characterized as downside risk aversion and plays a key role in preference for skewness. We use a simple experimental method to test for prudence and skewness preference in the laboratory and compare the two. To this end, we introduce a novel graphical representation of compound lotteries that is easily accessible to subjects and test it for robustness, using a factorial design. Prudence is observed on the aggregate and individual level. We find that prudence does not boil down to skewness seeking. We further provide some theoretical explanations for this result.
This paper was accepted by Peter Wakker, decision analysis.
Journal Article
Risk and uncertainty in a post-truth society
\"This edited volume looks at whether it is possible to be more transparent about uncertainty in scientific evidence without undermining public understanding and trust. With contributions from leading experts in the field, this book explores the communication of risk and decision-making in an increasingly post-truth world. Drawing on case studies from climate change to genetic testing, the authors argue for better quality evidence synthesis to cut through the noise and highlight the need for more structured public dialogue. For uncertainty in scientific evidence to be communicated effectively, they conclude that trustworthiness is vital: the data and methods underlying statistics must be transparent, valid, and sound, and the numbers need to demonstrate practical utility and add social value to people's lives. Presenting a conceptual framework to help navigate the reader through the key social and scientific challenges of a post-truth era, this book will be of great relevance to students, scholars and policy makers with an interest in risk analysis and communication\"-- Provided by publisher.
Book
Risk Aversion in Cumulative Prospect Theory
This paper characterizes the conditions for strong risk aversion and second-order stochastic dominance for cumulative prospect theory. Strong risk aversion implies a convex weighting function for gains and a concave one for losses. It does not necessarily imply a concave utility function. The latter does follow if the weighting functions are continuous. By investigating the exact relationship between loss aversion and strong risk aversion, a natural index for the degree of loss aversion is derived.
Journal Article
Uncertainty Aversion with Second-Order Utilities and Probabilities
Subjective expected utility theory does not distinguish between attitudes toward uncertainty (ambiguous probabilities) and attitudes toward risk (unambiguous probabilities). Both are explained in terms of nonlinear utility for money rather than properties of events per se, hence, the decision maker displays the same attitude toward all sources of risk and uncertainty. There is ample evidence that real decision makers do not always behave (or even wish to behave) in this way, and instead they often distinguish between risk and uncertainty, as in Ellsberg's (1961) paradox. This paper presents a simple axiomatic model of nonneutral attitudes toward uncertainty and a behavioral test for uncertainty aversion that is applicable even if utility is state dependent. The decision maker may display different degrees of aversion toward gambles on different kinds of events, e.g., being systematically more averse toward gambles on events whose probabilities are more ambiguous. For such a decision maker, the elicitation of preferences among objective gambles may not yield the correct measure of risk aversion for modeling real-world decisions.
Journal Article
Red team : how to succeed by thinking like the enemy
\"An international security expert shows how competitive organizations can get--and stay--ahead by thinking like their adversaries\"-- Provided by publisher.
Book
The Midweight Method to Measure Attitudes Toward Risk and Ambiguity
This paper introduces a parameter-free method for measuring the weighting functions of prospect theory and rank-dependent utility. These weighting functions capture risk attitudes, subjective beliefs, and ambiguity attitudes. Our method, called the midweight method, is based on a convenient way to obtain midpoints in the weighting function scale. It can be used both for risk (known probabilities) and for uncertainty (unknown probabilities). The resulting integrated treatment of risk and uncertainty is particularly useful for measuring ambiguity, i.e., the difference between uncertainty and risk. Compared to existing methods to measure weighting functions and attitudes toward uncertainty and ambiguity, our method is more efficient and can accommodate violations of expected utility under risk. An experiment demonstrates the tractability of our method, yielding plausible results such as ambiguity aversion for moderate and high likelihoods but ambiguity seeking for low likelihoods, as predicted by Ellsberg.
This paper was accepted by George Wu, decision analysis.
Journal Article