We study the relationship between the risk preferences of individuals and the risk preferences of the aggregate economy. To emphasize the vast differences that can occur between individual and market preferences brought about through aggregation, we assume an economy consisting entirely of risk...

I derive pricing kernels in which the market volatility is endogenously determined. Using the Taylor expansion series of the representative investor's marginal utility, I show that the price of market volatility risk is restricted by the investor's risk aversion and skewness preference. The risk...

In multivariate decisions under risk, assessing the complete utility function can be a major obstacle. Decision rules are investigated which characterize uniformly better alternatives with respect to a whole class of utility functions. In this paper independence assumptions are imposed on the...

This paper evaluates the relative performances of several well--known and widely--used incentive mechanisms under controlled experimental conditions. The scenario utilized is a delegated investment setting where effort and risk aversions contribute to moral hazard among fund managers. Analytical...

We study how decision makers choose when faced with multiple plays of a gamble or investment. When evaluating multiple plays of a simple mixed gamble, a chance to win x or lose y, subjects show a sensitivity to the amount to lose on a single trial, holding the distribution of returns for the...

Firms can increase profitability by appropriately motivating managers. We investigate drivers of managerial motivation, and propose how firms can use performance pay to alter motivational patterns. We focus on the agent's optimal effort decision in trading off compensation utility with effort...

The effects of multivariate risk are examined in a model of portfolio choice. The conditions under which portfolio choices are separable from consumption decisions are derived. Unless the appropriate restrictions hold on investors' preferences or on the probability distribution of risks, the...

The effects of risk and risk aversion in the single-period inventory ("newsboy") problem are examined. Comparative-static effects of changes in the various price and cost parameters are determined and related to the newsboy's risk aversion. The addition of a random background wealth and of an...

We consider two-part pricing of a service offered to risk-averse buyers subject to demand uncertainty. Buyers subscribe to the contract before resolution of the uncertainty. Sellers set two-part prices that trade off between insuring buyers against the uncertainty and the ex post deadweight loss...

Suppose that your choice between uncertain financial prospects is made more difficult by two independent contextual uncertainties concerning the size of your existing wealth. One contextual uncertainty has a greater spread than the other. If you could resolve one of these contextual...