
on Utility Models and Prospect Theory 
By:  Massimiliano Amarante 
Abstract:  Let E be a class of event. Conditionally Expected Utility decision makers are decision makers whose conditional preferences %E, E 2 E, satisfy the axioms of Subjective Expected Utility theory (SEU). We extend the notion of unconditional preference that is conditionally EU to unconditional preferences that are not necessarily SEU. We give a representation theorem for a class of such preferences, and show that they are Invariant Biseparable in the sense of Ghirardato et al.[7]. Then, we consider the special case where the unconditional preference is itself SEU, and compare our results with those of Fishburn [6]. 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:mtl:montec:022013&r=upt 
By:  Ignacio Abásolo (Departamento de Economía de las Instituciones, Estadística Económica y Econometría, Facultad de Ciencias Económicas y Empresariales. Universidad de La Laguna, Spain); Aki Tsuchiya (Department of Economics, The University of Sheffield) 
Abstract:  Four kinds of distributional preferences are explored: inequality aversion in health, inequality aversion in income, risk aversion in health, and risk aversion in income. Face to face interviews of a representative sample of the general public are undertaken using hypothetical scenarios involving losses in either health or income. Whilst in health risk aversion is stronger than inequality aversion, in the income context we cannot reject that attitudes to inequality aversion and risk aversion are the same. When we compare across contexts we find that inequality aversion and risk aversion are both stronger in income than they each are in health. 
Keywords:  inequality; risk aversion; health; income 
JEL:  I14 D63 D71 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:shf:wpaper:2013005&r=upt 
By:  Edi Karni (Johns Hopkins University); MarieLouise VierÃ¸ (Queen's University) 
Abstract:  This paper extends our earlier work on reverse Bayesianism by relaxing the assumption that decision makers abide by expected utility theory, assuming instead weaker axioms that merely imply that they are probabilistically sophisticated. We show that our main results, namely, (modified) representation theorems and corresponding rules for updating beliefs over expanding state spaces and null events that constitute "reverse Bayesianism," remain valid. 
Keywords:  Awareness, Unawareness, Reverse Bayesianism, Probabilistic sophistication 
JEL:  D8 D81 D83 
Date:  2013–02 
URL:  http://d.repec.org/n?u=RePEc:qed:wpaper:1303&r=upt 
By:  Anastasia Ellanskaya; Lioudmila Vostrikova 
Abstract:  We consider utility maximization problem for semimartingale models depending on a random factor $\xi$. We reduce initial maximization problem to the conditional one, given $\xi=u$, which we solve using dual approach. For HARA utilities we consider information quantities like KullbackLeibler information and Hellinger integrals, and corresponding information processes. As a particular case we study exponential Levy models depending on random factor. In that case the information processes are deterministic and this fact simplify very much indifference price calculus. Then we give the equations for indifference prices. We show that indifference price for seller and minus indifference price for buyer are risk measures. Finally, we apply the results to Geometric Brownian motion case. Using identity in law technique we give the explicit expression for information quantities. Then, the previous formulas for indifference price can be applied. 
Date:  2013–03 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1303.1134&r=upt 
By:  Alessandro Bucciol (Department of Economics (University of Verona)); Luca Zarri (Department of Economics (University of Verona)) 
Abstract:  Though risk attitude is central to economics and finance, relatively little is known about how it is formed and how it changes over time. Based on US data from a dedicated psychosocial module on lifestyle of the 2010 Health and Retirement Study (HRS), we provide new evidence on the correlation between financial risk attitude and lifehistory negative events out of an individual’s control. Using observed portfolio decisions to proxy for risk aversion, we find correlation with two of such events: having been in a natural disaster and (especially) the loss of a child. These effects survive after controlling for classic sociodemographic determinants of risk aversion. 
Keywords:  Risk Aversion; Financial Asset Ownership; Personal Life History; Behavioral Finance 
JEL:  D03 D14 D81 G11 
Date:  2013–02 
URL:  http://d.repec.org/n?u=RePEc:ver:wpaper:05/2013&r=upt 
By:  Kohsaka Youki (Center for Finance Research, Waseda University); Grzegorz Mardyla (Faculty of Economics, Kinki University); Shinji Takenaka (Japan Center for Economic Research); Yoshiro Tsutsui (Graduate School of Economics, Osaka University) 
Abstract:  We experimentally investigate the existence of and possible origin of the disposition effect. Our approach has three distinct characteristics: Firstly, we created an experimental environment that closely mimics a real stock market and were thus able to obtain and analyze trading behavior data that accurately depicts actual individual investor trading behavior. Secondly, based on a questionnaire survey we conducted during the experiment, we were able to pinpoint each individual participantfs reference point. This, in effect, allowed us to verify an independent hypothesis of the existence of the disposition effect. such an approach differs from the extant literature, where only a joint hypothesis has been examined so far. Thirdly, we measured individual loss aversion coefficients and directly tested whether loss aversion is a cause of the disposition effect. Our results indicate both the existence of the disposition effect as well as prospect theoryfs loss aversion being one of its sources. 
Keywords:  disposition effect, loss aversion, investor behavior, experimental economics 
Date:  2013–02 
URL:  http://d.repec.org/n?u=RePEc:osk:wpaper:1302&r=upt 
By:  Johanna F. Ziegel 
Abstract:  The risk of a financial position is usually summarized by a risk measure. As this risk measure has to be estimated from historical data, it is important to be able to verify and compare competing estimation procedures. In statistical decision theory, risk measures for which such verification and comparison is possible, are called elicitable. It is known that quantile based risk measures such as value at risk are elicitable. In this paper we show that lawinvariant spectral risk measures such as expected shortfall are not elicitable unless they reduce to minus the expected value. Hence, it is unclear how to perform forecast verification or comparison. However, the class of elicitable lawinvariant coherent risk measures does not reduce to minus the expected value. We show that it contains expectiles, and that they play a special role amongst all elicitable lawinvariant coherent risk measures. 
Date:  2013–03 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1303.1690&r=upt 
By:  Nicolae Popoviciu; Floarea Baicu 
Abstract:  The work deals with the risk assessment theory. An unitary risk algorithm is elaborated. The algorithm is based on parallel curves. The basic curve of risk is a hyperbolic curve, obtained as a multiplication between the probability of occurrence of certain event and its impact. Section 1 contains the problem formulation. Section 2 contains some specific notations and the mathematical background of risk algorithm. A numerical application based on risk algorithm is the content of section 3. Section 4 contains several conclusions. 
Date:  2013–03 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1303.1672&r=upt 