Managers often lament that their employees are risk averse and do not take sufficient risks. While in some instances employees might in fact be too risk averse, we explore situations in which managers may incorrectly judge their employees to be overly risk averse or timid. In two studies, we find evidence of a timidity bias in evaluations--evaluators judge target decision makers to be risk aver...

Core-selecting combinatorial auctions have been introduced as an alternative to the Vickrey-Clarke-Groves (VCG) mechanism because VCG results in payments that are not in the core with respect to bids, leading to unfair payments, unacceptably low revenues, and unstable outcomes. This raises an auction selection problem for an auctioneer deciding whether to employ a core-selecting auction or VCG ...

We analyze a two-sector, general-equilibrium model of productive matching and sorting, where risky production is carried out by pairs of individuals both exerting effort. Risk-neutral (entrepreneurial) individuals can match either with other risk-neutral individuals, or – acting as employers/insurers – with risk-averse (nonentrepreneurial) individuals. Although the latter option has the potenti...

A rich literature seeks to explain the distinctive features of equilibrium institutions arising in risky environments which lack formal insurance and credit markets. I develop a theory of endogenous matching between heterogeneously risk-averse individuals who, once matched, choose both the riskiness of the income stream they face (ex ante risk management) as well as how to share that risk (ex p...

I study the welfare cost of business cycles in a complete-markets economy where some people are more risk averse than others. Relatively more risk-averse people buy insurance against aggregate risk, and relatively less risk-averse people sell insurance. These trades reduce the welfare cost of business cycles for everyone. Indeed, the least risk-averse people benefit from business cycles. Moreov...

We consider risk-averse formulations of multistage stochastic linear programs. For these formulations, based on convex combinations of spectral risk measures, risk-averse dynamic programming equations can be written. As a result, the Stochastic Dual Dynamic Programming (SDDP) algorithm can be used to obtain approximations of the corresponding risk-averse recourse functions. This allows us to de...

This note shows that for two inequality averse social welfare functions, if one is more inequality averse than the other, the household preference induced by optimally allocating aggregate bundles according to this social welfare function is more risk averse than the other. We present examples showing that this comparative static can be reversed if inequality aversion is dropped. We show that t...

In some competitive situations under uncertainty, less risk averse competitors have an advantage over more risk averse opponents. Private information acquisition by the advantaged players diminishes this advantage by reducing the risk faced by their opponents in a Nash equilibrium. This tradeoff between risk advantages and informational advantages is examined in the context of a duopoly model w...