The Foster-Hart Measure of Riskiness for General Gambles

Foster and Hart proposed an operational measure of riskiness for discrete random variables. We show that their defining equation has no solution for many common continuous distributions including many uniform distributions, e.g. We show how to extend consistently the definition of riskiness to continuous random variables. For many continuous random variables, the risk measure is equal to the worst--case risk measure, i.e. the maximal possible loss incurred by that gamble. We also extend the Foster--Hart risk measure to dynamic environments for general distributions and probability spaces, and we show that the extended measure avoids bankruptcy in infinitely repeated gambles

Risk Attitudes and Measures of Value for Risky Lotteries.

The topic of this thesis is decision-making under risk. I focus my analysis on expected utility theory by von Neumann and Morgenstern. I am especially interested in modeling risk attitudes represented by Bernoulli utility functions that belong to the following classes: Constant Absolute Risk Aversion, Decreasing Absolute Risk Aversion (understood as strictly decreasing) and in particular a subset thereof - Constant Relative Risk Aversion. I build a theory of buying and selling price for a lottery, the concepts defined by Raiffa, since such theory proves useful in analyzing a number of interesting issues pertaining to risk attitudes' characteristics within expected utility model. In particular, I analyze the following: - Chapter 2 - expected utility without consequentialism, buying/selling price gap, preference reversal, Rabin paradox - Chapter 3 - characterization results for CARA, DARA, CRRA, simple strategies and an extension of Pratt result on comparative risk aversion - Chapter 4 - riskiness measure and its intuition, extended riskiness measure and its existence, uniqueness and propertiesdecision-making under risk; lottery; gamble; expected utility theory; risk attitudes; CARA; DARA; CRRA; buying and selling price for a lottery; D81; D03; C91;Decision making; Strategic planning; Risk-taking (Psychology);

The riskiness of corporate bonds

When the riskiness of an asset increases, then, arguably, some risk-averse agents that were previously willing to hold on to the asset are no longer willing to do so. Aumann and Serrano (2008) have recently proposed an index of riskiness that helps to make this intuition rigorous. We use their index to analyze the riskiness of corporate bonds and how this can change over time and across rating classes and how it compares to the riskiness of other financial instruments. We find statistically significant evidence that a number of financial and macroeconomic variables can predict time-variation in the riskiness of corporate bonds, including in ways one might not expect. For example, a higher yield-to-maturity lowers riskiness by reducing the frequency and the magnitude of negative holding-period returns.riskiness, corporate bonds, predictability

Recalibrating valence weighting biases to promote changes in rejection sensitivity and risk-taking

Past research has found that modifying individuals' valence weighting tendencies by recalibrating them to weight positive and negative valence in a more balanced manner influenced a variety of judgments. The current research examines the utility of the recalibration procedure as a targeted intervention. In Experiment 1, we recruited participants high in rejection sensitivity (who are known to exhibit a negative weighting bias) and in Experiment 2, we recruited participants with high risk tendencies (who are known to exhibit a positive weighting bias). In both experiments, participants first played BeanFest, in which they were presented with beans varying in shape and speckles and learned which increased or decreased points. They later classified the game beans, as well as novel ones varying in their resemblance to the known positives or known negatives, as good or bad. In the recalibration condition, participants were told if they classified each bean correctly, thus receiving feedback regarding the appropriate weighting of resemblance to a known positive versus a negative. The controls, who received no feedback, were less accurate at classifying the novel the beans than the recalibration participants. Furthermore, in Experiment 1, the recalibration condition subsequently exhibited lower sensitivity to rejection than the control condition, with this reduction being stronger for individuals initially higher in rejection sensitivity. This effect was still present a week later. In Experiment 2, the recalibration condition reported diminished risk-tendencies, again with this effect being stronger for individuals with initially higher riskiness, and persisting for a week. Even more importantly, recalibration participants also engaged in less risky behavior on a laboratory task

Risk preference discrepancy : a prospect relativity account of the discrepancy between risk preferences in laboratory gambles and real world investments

In this article, we presented evidence that people are more risk averse when investing in financial products in the real world than when they make risky choices between gambles in laboratory experiments. In order to provide an account for this discrepancy, we conducted experiments, which showed that the range of offered investment funds that vary in their riskreward characteristics had a significant effect on the distribution of hypothetical funds to those products. We also showed that people are able to use the context provided by the choice set in order the make relative riskiness judgments for investment products. This context dependent relativistic nature of risk preferences is proposed as a plausible explanation of the risk preference discrepancy between laboratory experiments and real-world investments. We also discuss other possible theoretical interpretations of the discrepancy

Conditional and Dynamic Convex Risk Measures

We extend the definition of a convex risk measure to a conditional framework where additional information is available. We characterize these risk measures through the associated acceptance sets and prove a representation result in terms of conditional expectations. As an example we consider the class of conditional entropic risk measures. A new regularity property of conditional risk measures is defined and discussed. Finally we introduce the concept of a dynamic convex risk measure as a family of successive conditional convex risk measures and characterize those satisfying some natural time consistency properties.Conditional convex risk measure, robust representation, regularity, entropic risk measure, dynamic convex risk measure, time consistency