Evidence indicates that people fear change and the unknown. We offer a model of familiarity bias in which individuals focus on adverse scenarios in evaluating defections from the status quo. The model explains the endowment effect, portfolio underdiversification, home and local biases....

We demonstrate that limited participation can arise endogenously in the presence of model uncertainty. Our model generates novel predictions on how limited participation relates to equity premium and diversification discount. When the dispersion in investors' model uncertainty is small, full...

We demonstrate that limited participation can arise endogenously in the presence of model uncertainty and heterogeneous uncertainty-averse investors. When uncertainty dispersion among investors is small, full participation prevails in equilibrium. Equity premium is related to the average...