We conduct a laboratory experiment to test whether subjects tend to meet the expectations of others (the guilt aversion hypothesis). The speci…city of our approach is that second-order beliefs are manipulated exogenously just by changing the parameters of the experimental game. In particular, we consider a simple communication game where the sender is perfectly informed about his material payo¤...

In an economy with a continuum of individuals, each individual has a stochastic, continuously evolving endowment process. Individuals are risk-averse and would therefore like to insure their endowment processes. It is feasible to obtain insurance by pooling endowments across individuals because the processes are mutually independent. We characterize the payoff from an insurance contracting sche...

We develop a single-period model for a large economic agent who trades with market makers at their utility indifference prices. We compute the sensitivities of these market indifference prices with respect to the size of the investor’s order. It turns out that the price impact of an order is determined both by the market makers’ joint risk tolerance and by the variation of individual risk toler...

We study the market implications of ambiguity in many common models. We show that generic determinacy is a robust feature in many general equilibrium models that allow a distinction between ambiguity and risk. JEL Codes: D0, D5, D8, G1

This paper defines temporal risk aversion in the context of a simple choice framework: that of time varying utility of wealth. The attention is focused on a decision maker who acts as a buyer: temporal risk premium, instantaneous risk premium and time preference premium are defined.

We show that differences in investors risk aversion can generate herd behavior in stock markets where assets are traded sequentially. This in turn prevents markets from being efficient in the sense that Þnancial market prices do not converge to the asset’s fundamental value. The informational efficiency of the market depends on the distribution of the risky asset across risk averse agents. Thes...

Multiplicative habit introduces an additional consumption risk as a determinant of equity premium, and allows time preference and habit strength, in addition to risk aversion, to affect “price of risk”. A model combining multiplicative habit and power-expo preferences cannot be rejected.

This is a first study on attachment to national and sacred land and land as a protected value. A measure of attachment to the land of Israel is developed and administered to two groups, Jewish college students in Israel and the United States. Levels of land attachment are high and not significantly different in the two groups, with a great deal of variation. Land may become more important throu...