Nature Risk

Risk and Risk Aversion when States of Nature Matter

When uncertainty is associated with some intrinsically relevant states of nature, there is no reason for an agent to base his or her preferences only on probability distribution of claims. We propose a new concept of risk for statecontingent claims that, unlike the standard concept of Rothschild-Stiglitz, does not identify state-contingent claims with their probability distribution. This concep...

On the Systemic Nature of Weather Risk

Systemic weather risk is a major obstacle for the formation of private (nonsubsidized) crop insurance. This paper explores the possibility of spatial diversification of insurance by estimating the joint occurrence of unfavorable weather conditions in different locations. For that purpose copula methods are employed that allow an adequate description of stochastic dependencies between multivaria...

The Nature and Theory of Risk

Does Nature Prefer Heterocycles?

Modeling Risk and Ambiguity-on-Nature in Normal-form Games

We propose multi-player frameworks that mitigate decision-theoretical difficulties with the traditional normal-form game, where players are concerned with expected utility functions of their payoffs. We react to Allais’s [1] paradox by concerning players with potentially nonlinear functionals of the payoff distributions they encounter. To counter Ellsberg’s [12] paradox, we let players optimize...