6 Chance constraints and the choice of uncertainty sets 15 6.1 Value at risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.2 Safe convex approximations for chance constraints . . . . . . . . . . . . . . . 17 6.3 Tightest convex bounds and conditional value at risk . . . . . . . . . . . . . 18 6.4 Analytic approximation using moment generating functions . . . . . ....

We develop awareness-dependent subjective expected utility by taking unawareness structures introduced in Heifetz, Meier, and Schipper (2006, 2008, 2011a) as primitives in the Anscombe-Aumann approach to subjective expected utility. We observe that a decision maker is unaware of an event if and only if her choices reveal that the event is “null” and the negation of the event is “null”. Moreover...

In this paper we derive closed-form solutions for the cumulative density function and the average value-at-risk for five subclasses of the infinitely divisible distributions: classical tempered stable distribution, Kim-Rachev distribution, modified tempered stable distribution, normal tempered stable distribution, and rapidly decreasing tempered stable distribution. We present empirical evidenc...

We develop a framework for continuous search for information on a choice set of multiple alternatives, and apply it to consumer search in a product market. When a consumer considers purchasing a product in a product category, the consumer can gather information sequentially on several products. At each moment the consumer can choose which product to gather more information on, and whether to st...

In this paper we present a framework for backtesting all currently popular risk measurement methods (including value-at-risk and expected shortfall) using the functional delta method. Estimation risk can be taken explicitly into account. Based on a simulation study we provide evidence that tests for expected shortfall with acceptable low levels have a better performance than tests for value-at-...

We offer a new explanation for the long-run underperformance of IPO stocks using prospect theory. According to this theory, uncertain outcomes enter an investor’s utility function through a nonlinear transformation of their probabilities. Small probability events are given more weight than in expected utility theory, whereas median and large probability events are given less weight. IPO stocks ...

This paper discusses how numerically imprecise information can be modelled and how a risk evaluation process can be elaborated by integrating procedures for numerically imprecise probabilities and utilities. More recently, representations and methods for stating and analysing probabilities and values (utilities) with belief distributions over them (second order representations) have been sugges...

This paper presents a formal framework within which autonomous agents can dynamically select and apply different mechanisms to coordinate their interactions with one another. Agents use the task attributes and environmental conditions to evaluate which mechanism maximises their expected utility. Different agent types can be characterised by their willingness to cooperate and the relative value ...

This paper offers a simple but powerful model of wishful thinking, cognitive dissonance, and related biases. Choices maximize subjective expected utility, but beliefs depend on the decision maker's interests as well as on relevant information. Simplifying assumptions yield a representation in which the payoff in an event affects beliefs as if it were part of the evidence about its likelihood. A...

The most widely used reputation models assume uniform users’ preference structure. In this paper a new reputation management model is presented. It is focused on aggregation of community wide reputation in situation when agents do not share the same preference structure. The reputation is interpreted as vectors of attributes that represent several reputation evaluation criteria. Outcomes of the...