This paper examines the impact of management preferences on optimal futures hedging strategy and associated performance. Applying an expected utility hedging objective, the optimal futures hedge ratio is determined for a range of preferences on risk aversion, hedging horizon and expected returns. Empirical results reveal substantial hedge ratio variation across distinct management preferences a...

We develop a model of reference-dependent preferences and loss aversion where “gain–loss utility” is derived from standard “consumption utility” and the reference point is determined endogenously by the economic environment. We assume that a person’s reference point is her rational expectations held in the recent past about outcomes, which are determined in a personal equilibrium by the require...

The problem of determining nurse staffing levels in a hospital environment is a complex task due to variable patient census levels and uncertain service capacity caused by nurse absenteeism. In this paper we combine an empirical investigation of the factors affecting nurse absenteeism rates with an analytical treatment of nurse staffing decisions using a novel variant of the newsvendor model. U...

We consider a portfolio-choice problem with one risky and one safe asset, where the utility function exhibits decreasing absolute risk aversion (DARA). We show that the indirect utility function of the portfolio-choice problem need not exhibit DARA. However, if the (optimal) marginal propensity to invest is positive for both assets, which is true when the utility function exhibits nondecreasing...

This paper develops a theory of choice under risk and uncertainty which, together with the associated definition of risk aversion, separates the concepts of risk aversion and diminishing marginal utility from each other. Building on separate definition of the decision maker’s two elementary preference relations—preferences over lotteries and preferences over consequences—and a set of consistenc...

Rabin [23] proved that a low level of risk aversion with respect to small gambles leads to a high level of risk aversion with respect to large gambles. Rabin’s arguments strongly depend on expected utility theory, but we show in this paper that similar arguments apply to many non expected utility theories, and to a certain extent, to theories dealing with uncertainty as well.

T paper studies the role of the yield-dependent trading cost structure influencing the optimal choice of the selling price and production quantity for a firm that operates under supply uncertainty in the agricultural industry. The firm initially leases farm space, but its realized amount of fruit supply fluctuates because of weather conditions, diseases, etc. At the end of the growing season, t...

The classical newsvendor problem is to find a product's order quantity to maximize the expected profit under probabilistic demand. This paper restudies the problem under the perspective of competitive analysis, in which only the lower bound and upper bound rather than the distribution of the future demand are known. Some preliminary results of the problem with competitive analysis are given fir...

This paper analyses conditions for an increase in an additive independent background risk to increase an agent’s risk aversion (incremental risk vulnerability). We, first, present a necessary and sufficient condition on an agent’s utility function for a simple mean preserving spread in background risk to increase the agent’s risk aversion. Gollier and Pratt (1996) have shown that declining and ...