Many subjects in lab experiments show considerable risk aversion in small-stakes gambles. This is counter to the predictions of expected utility theory for any reasonable degree of risk aversion (Rabin 2000) but is consistent with loss aversion in prospect theory. Benjamin, Brown, and Shapiro (forthcoming) show that math skills reduce small-stakes risk aversion, consistent with broader evidence...

We consider the effects of risk preferences in mixed-strategy equilibria of 2 × 2 games, provided such equilibria exist. We identify sufficient conditions under which the expected payoff in the mixed equilibrium increases or decreases with the degree of risk aversion. We find that (at least moderate degrees of) risk aversion will frequently be beneficial in mixed equilibria. © 2007 Elsevier Inc...

In the standard solution to the principal-agent problem, a risk-neutral agent bears all the risk. This paper shows that, in fact, multiple solutions exist, and often the risk-neutral agent is not the sole bearer of risk. Furthermore, as risk aversion approaches zero, the unique risk-averse solution converges to the risk-neutral solution wherein the agent bears the least amount of risk. Even a s...

Using survey-based measures of loss aversion of mutual fund managers, we study the effects of institutional investor preferences on their investment decisions, performance, and career outcomes. Funds managed by managers with higher aversion to losses take on less downside risk and have lower risk-adjusted returns. More loss averse managers are more likely to have their contracts terminated. Our...

the main logic behind the demand for life insurance is to hedge against the labor income uncertainty due to premature death of a wage earner. in other words, life insurance is the device by which this labor income uncertainty is handled. for insurers, the uncertainty arises from the lack of knowledge about the age of death of the wage earner. this paper attempts to derive life insurance demand ...

We apply the aggregation property of Identical Shape Harmonic Absolute Risk Aversion (ISHARA) utility functions to analyze the comparative statics properties of a bargaining model with uncertainty. We identify sufficient and necessary conditions under which an increase in one’s degree of risk aversion benefits/hurts one’s opponent. We apply our model to analyze the problems of bargaining over i...

Dual-channel not only provides reasonable products but also a large quantity of opportunities, where the members’ attitude towards risk has a major impact on channel optimization. In this paper, risks are classified as general risk and interruption risk. As for general risk, combined with risk-aversion attitude, mean-variance method is used to build optimal pricing model and expected utility mo...

We explore the relevance of the risk attitude of managers to the investment-uncertainty relation. Higher moments of the distribution of net profits are used to measure the risk premium of the firm, from which we derive a proxy for the risk aversion of managers. Using an unbalanced panel of Dutch listed firms, we find that in general a low degree of risk aversion coincides with a positive impact...