the most commonly used utility functional forms are reviewed and their properties compared. then, using data collected from west azarbaijan province, utility functions are estimated and absolute risk aversion coefficients measured. exponential and expopower utility functions classified all farmers as risk averse, but quadratic and cubic utility functions classified 75% and 65% of farmers as...

This paper develops a framework to link the expected utility analysis to real options models in order to capture the joint effects of risk aversion and irreversibility associated with real investments. It aims at modifying the theory of investment under uncertainty by incorporating decision makers’ risk preferences and allows explicitly analyzing the impacts of risk aversion, uncertainty and ir...

In this article, we show how the degree of risk aversion, discounting, and preference for intertemporal substitution for a natural resource manager can be structurally estimated within a recursive utility framework. We focus on the management of a reservoir in California, and test the data for consistency with a recursive utility model specification versus standard time-additive separability. T...

The violations of expected utility axioms displayed in the Ellsberg paradox have recently been attributed to ambiguity aversion. In this paper, we study the impact of ambiguity aversion on equilibrium asset pricing and portfolio holdings in competitive financial markets. We pay particular attention to potential heterogeneity, because a significant minority usually does not violate expected util...

This paper demonstrates that an important role of intermediaries in supply chains is to reduce the ®nancial risk faced by retailers. It is well known that risk averse retailers when faced by the classical single-period inventory (newsvendor) problem will order less than the expected value maximizing (newsboy) quantity. We show that in such situations a risk neutral distributor can o€er a menu o...

The idea that probability distribution functions could provide appropriate mathematical forms for utility functions representing risk aversion is of respectable antiquity. But the relatively few examples that have appeared in the economics literature have displayed quite restrictive risk aversion properties. This paper examines the potential of the generalised extreme value (GEV) distribution a...

Market-makers have the obligation to trade fixed amounts of assets at quoted bid or ask prices, and their inventories are exposed to the potential loss when the market price moves in an undesirable direction. One approach to reduce the risk associated with price uncertainty is to adjust the inventory at the price of losing potential spread gain. For a single-asset model, we show that a threshol...

The purpose of this paper is to derive explicit formulae for the asset allocation decision for the loss aversion utility function proposed by Kahneman and Tuversky. We show that these utility functions exhibit constant absolute risk aversion. We also give analytic results which interpret the assumptions of risk-aversion with respect to gains but risk-a¤ection with respect to losses in terms of ...

In this paper we analyse a pure jump incomplete market where the risky assets can jump upwards or downwards. In this market we show that, when an investor wants to maximise a HARA utility function of his/her terminal wealth, his/her optimal strategy consists of keeping constant proportions of wealth in the risky assets, thus extending the classical Merton result to this market. Finally, we comp...

In this paper, we present an analytical model to investigate how the optimal production strategy of new energy vehicles (NEVs) is influenced by subsidy, market fluctuation, and loss aversion. We find that a loss averse decision maker may produce more production quantity than the optimal quantity in risk neutrality under the certain conditions. We demonstrate that the expected utility is substan...