Risk Aversion, Transparency, and Market Performance

Risk Aversion , Beliefs , and Prediction Market Equilibrium

Manski [2004] analyzes the relationship between the distribution of traders’ beliefs and the equilibrium price in a prediction market with risk neutral traders. He finds that there can be a substantial difference between the mean belief that an event will occur, and the price of an asset that pays one dollar if the event occurs and otherwise pays nothing. This result is puzzling, since these ma...

Performance Pay and Risk Aversion

Performance Pay and Risk Aversion A main prediction of agency theory is the well known risk-incentive trade-off. Incentive contracts should be found in environments with little uncertainty and for agents with low degrees of risk aversion. There is an ongoing debate in the literature about the first trade-off. Due to lack of data, there has so far been hardly any empirical evidence about the sec...

Optimal Market-Making with Risk Aversion

Risk management is the underlying paradigm necessary to mitigate the impact of adverse outcomes such as financial crises, energy shortages, oil disasters, global supply chain disruptions, and a myriad of other potentially catastrophic large-scale system failures. This seminar series serves as a platform to bring together diverse perspectives, problem definitions and solutions that transcend dis...

Certification and Market Transparency

We provide elementary insights into the effectiveness of certification to increase market transparency. In a market with opaque product quality, sellers use certification as a signaling device, while buyers use it as an inspection device. This difference alone implies that seller-certification yields more transparency and higher social welfare. Under buyer-certification profit maximizing certif...

SECURITIZING INSURANCE: RISK AVERSION, DIVERSIFICATION AND MARKET EQUILIBRIUM by