degree of pessimism of the representative agent is the mean of the individual ones weighted by their index of absolute risk …

tests. In particular, expected returns can appear to decline in risk when investors weakly transmit their payoff … transmission of beliefs to actions, which generates a negative risk-return relation. We argue that the weak transmission is due to … cognitive noise and demonstrate that cognitive noise causally affects the risk-return relation. Our results highlight the …

We examine asset prices in a representative-agent model of general equilibrium. Assuming only that individuals are risk … averse, we determine conditions on the changes in asset risk that are both necessary and sufficient for the asset price to … incomplete in the sense of containing an uninsurable background risk, such as a risk on labor income. We extend our model to show …

price, the equilibrium risk-free rate, and risk premia. Climate disasters, which are more likely to occur sooner as … temperature rises, significantly increase risk premia. …

We develop a financial-economic model for carbon pricing with an explicit representation of decision making under risk … specifications. We show that risk associated with high damages in the long term leads to stringent mitigation of carbon dioxide … emissions in the near term. Our results provide insight into how a systematic incorporation of climate-related risk influences …