We provide necessary and sufficient conditions on an individual's expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual's demand for options...

In this note I give a full characterization of all deterministic direct mechanisms in the public good provision problem with independent private values that are dominant strategy incentive compatible, ex-post individually rational, and ex-post budget balanced.

Proper risk aversion, a pivotal concept in the study of behavioral conditions on utility functions, states that an undesirable risk can never be made desirable by the presence of an independent risk. It is well known that standard risk aversion is sufficient for this concept. We show in this...

This paper investigates the impact of divergent consumer confidence on option prices. To model this, we assume that consumers disagree on the expected growth rate of aggregate consumption. With other conditions unchanged in the discrete-time Black–Scholes option-pricing model, we show that the...

In an exchange economy under uncertainty with two periods, one physical good, and finitely many states of the world, we show that for every (complete or incomplete) market span there exists a sequence of securities such that if they are introduced into markets one by one, the prices of any...