With moral hazard and anonymous asset trade, first-order conditions need not characterize effort and portfolio choices. The standard procedure for establishing validity of the first-order approach in economies with one hidden asset is not fruitful when multiple assets are hidden.

In a global game, larger ambiguity is shown to decrease the amount of coordination each player perceives. Consequently, small uncertainty tends to select the Pareto dominated equilibrium of the game without uncertainty. Implications for models of financial crises are drawn.

Subjects who overestimate their performance in experimental tasks unrelated to travel are less willing to insure against failing in the task and also less inclined to buy travel insurance. This suggests intrinsic optimism influences insurance demand and diminishes adverse selection.

This paper studies the cyclicality of aggregate real wages in Japan. By using both static and dynamic approaches, I measure comovements between real wages and business cycle indicators. This paper finds that while real wages constructed using the consumer price index and the GDP deflator are...

We observe that identification of the discount rate from experimental data requires an assumption about the consumption period, the length of time over which a payment will be turned into utility-providing consumption. We show that the optimal consumption period is substantially longer than...

We conduct a field experiment with low-income subjects in Dallas, Texas. We examine voluntary, informal risk sharing using a visual representation of the solidarity game developed for low-literacy populations. We find substantially more ‘fixed gift to loser’ behavior and less...

We identify the conditions where robust mean–variance preferences, which capture ambiguity aversion, are observationally nonequivalent to subjective mean–variance preferences. Conversely, we also provide an example showing that observational equivalence holds regardless of the degree of...

This study establishes necessary conditions for Almost Stochastic Dominance criteria of various orders. These conditions take the form of restrictions on algebraic combinations of moments of the probability distributions in question. The relevant set of conditions depends on the relevant order...

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...

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...