Emotions have been proposed to inform risky decision-making through the influence of affective physiological responses on subjective value. The ability to perceive internal body states, or "interoception" may influence this relationship. Here, we examined whether interoception predicts participants' degree of loss aversion, which has been previously linked to choice-related arousal responses. P...

The literature discusses risk aversion as one of the behavioral determinants of technology adoption. However, little attention has been paid to measuring ambiguity aversion of poor people in developing countries or in finding the role of ambiguity aversion in technology adoption. Risk experiments in the previous studies have been designed in such a way that individuals face the risky and/or amb...

We analyse how progressive taxation and education subsidies affect schooling decisions when the returns to education are stochastic. We use the theory of real options to solve the problem of education choice in a dynamic stochastic model. We show that education attainment will be an increasing function of the risk associated with education. Furthermore, this result holds regardless of the degre...

This paper examines how aversion to risk and aversion to intertemporal substitution determine the strength of the precautionary saving motive in a two-period model with Selden/Kreps-Porteus preferences. For small risks, we derive a measure of the strength of the precautionary saving motive which generalizes the concept of "prudence" introduced by Kimball (1990b). For large risks, we show that d...

Marital status can both reflect and affect individual preferences. We explore the impact of marriage on corporate CEOs, and find that firms run by single CEOs exhibit higher stock return volatility, pursue more aggressive investment policies, and do not respond to changes in idiosyncratic risk. These effects are weaker for older CEOs. Our findings continue to hold when we use variation in divor...

We develop a model in which the parties to a joint production project have a choice of specifying contractual performance in terms of actions or deliverables. Penalties for noncompliance are not specified; rather, they are left to the courts under the legal doctrine of compensatory damages. We analyze three scenarios of increasing uncertainty: Full Knowledge – where implications of partner acti...

This paper investigates the information in corporate credit ratings from a positive and normative perspective. If ratings are to be informative indicators of credit risk they must reflect what a risk-averse investor cares about: both raw default probability and systematic risk. We find that ratings are inaccurate measures of raw default probability they are dominated as predictors of failure by...

We develop a methodology to optimally design a financial issue to hedge non-tradable risk on financial markets.The modeling involves a minimization of the risk borne by issuer given the constraint imposed by a buyer who enters the transaction if and only if her risk level remains below a given threshold. Both agents have also the opportunity to invest all their residual wealth on financial mark...

We test the implications of ambiguity aversion in a principal-agent problem with multiple agents. Models of ambiguity aversion suggest that, under ambiguity, comparative compensation schemes may become more attractive than independent wage contracts. We test this by presenting agents with a choice between comparative reward schemes and independent contracts, which are designed such that under u...