Risk and ambiguity are two conditions in which the consequences of possible outcomes are not certain. Under risk, the probabilities of different outcomes can be estimated, whereas under ambiguity, even these probabilities are not known. Although most people exhibit at least some aversion to both risk and ambiguity, the degree of these aversions is largely uncorrelated across subjects, suggestin...

Risk and ambiguity are two conditions in which the consequences of possible outcomes are not certain. Under risk the probabilities of different outcomes can be estimated, while under ambiguity even these probabilities are not known. Although most people exhibit at least some aversion to both risk and ambiguity, the degree of these aversions is largely uncorrelated across subjects, suggesting th...

We investigate a representative agent consumption-based asset pricing model with two states: low risk aversion and high risk aversion. We explore whether there is a reasonable parameterization capable of generating the empirically observed seasonally-varying equity and Treasury returns documented by Kamstra, Kramer, and Levi (2008). Calibrating the asset-pricing model to observed consumption da...

In this paper we propose the inÞmum of the Arrow-Pratt index of absolute risk aversion as a measure of global risk aversion of a utility function. We then show that, for any given arbitrary pair of distributions, there exists a threshold level of global risk aversion such that all increasing concave utility functions with at least as much global risk aversion would rank the two distributions in...

28 Risk and ambiguity are two conditions in which the consequences of possible 29 outcomes are not certain. Under risk the probabilities of different outcomes can 30 be estimated, while under ambiguity even these probabilities are not known. 31 Although most people exhibit at least some aversion to both risk and ambiguity, 32 the degree of these aversions is largely uncorrelated across subjects...

This paper attempts to reconcile the risk-bearing characterization of entrepreneurs with the stylized fact that entrepreneurs exhibit conventional risk aversion profiles. We propose that the disparity arises from confounding two distinct dimensions of uncertainty: demand uncertainty and ability uncertainty. We further propose that entrepreneurs will be risk averse with respect to demand uncerta...

In this paper we study the design and characterization of prediction markets in the presence of traders with unknown risk-aversion. We formulate a series of desirable properties for any “market-like” forecasting mechanism. We present a randomized mechanism that satisfies all these properties while guaranteeing that it is myopically optimal for each trader to trade honestly, regardless of her de...

We consider a formal approach to comparative risk aversion and applies it to intertemporal choice models. This allows us to ask whether standard classes of utility functions, such as those inspired by Kihlstrom and Mirman (1974), Selden (1978), Epstein and Zin (1989) and Quiggin (1982) are well-ordered in terms of risk aversion. Moreover, opting for this model-free approach allows us to establi...

We consider a formal approach to comparative risk aversion and applies it to intertemporal choice models. This allows us to ask whether standard classes of utility functions, such as those inspired by Kihlstrom and Mirman (1974), Selden (1978), Epstein and Zin (1989) and Quiggin (1982) are well-ordered in terms of risk aversion. Moreover, opting for this model-free approach allows us to establi...