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Loss Modification Incentives for Insurers under Expected Utility and Loss Aversion
Soetevent, Adriaan R.; Zhou, Liting - 2014
Given the possibility to modify the probability of a loss, will a profit-maximizing insurer engage in loss prevention or is it in his interest to increase the loss probability? This paper investigates this question. First, we calculate the expected profit maximizing loss probability within an...
Persistent link: https://www.econbiz.de/10010491345
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Default Option, Risk-Aversion and Household Borrowing Behaviour
Groessl, Ingrid; Fritsche, Ulrich - 2007
Assuming a risk-neutral bank and assuming household utility to be exponential, we show how under information symmetry …
Persistent link: https://www.econbiz.de/10010420837
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Regular prices and sales
Heidhues, Paul; Koszegi, Botond - 2010
We study the properties of a profit-maximizing monopolist's optimal price distribution when selling to a loss-averse consumer, where (following Koszegi and Rabin (2006)) we assume that the consumer's reference point is her recent rational expectations about the purchase. If it is close to...
Persistent link: https://www.econbiz.de/10010352070
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Saving rates and portfolio choice with subsistence consumption
Achury, Carolina; Hubar, Sylwia; Koulovatianos, Christos - 2011
We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quantitatively explaining: (i) the higher saving rates of the rich, (ii) the...
Persistent link: https://www.econbiz.de/10010308579
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Utility Functions of Equivalent Form and the Effect of Parameter Changes on Optimum Decision Making
Broll, Udo; Battermann, Harald L.; Wahl, Jack E. - 2006
case of constant relative risk aversion (of some order) to investigate on different equivalence relations in order to …
Persistent link: https://www.econbiz.de/10010296800
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Hedging Price Risk When Real Wealth Matters
Adam-Müller, Axel F. A. - 1999
This paper analyzes optimal hedging of a tradable risk (e.g. price risk or exchange rate risk) with forward contracts … in the presence of untradable inflation risk. Utility is defined over real wealth. Optimal forward positions are derived … relative to a given initial exposure in the tradable risk. A nominally unbiased forward market usually implies a non-zero real …
Persistent link: https://www.econbiz.de/10010324032
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Markets for heterogeneous products: A boundedly rational consumer model
Valente, Marco - 2009
The paper is based on the acknowledgement that properties of markets stemming from features of demand are too frequently overlooked in the economic literature, and a re-balancing is necessary to properly account for theoretical and empirical phenomena. We sustain that one of the most relevant...
Persistent link: https://www.econbiz.de/10010328511
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Local Status and Prospect Theory
Harbaugh, Rick; Kornienko, Tatiana - 2000
People are sometimes risk-averse in gains but risk-loving in losses. Such behavior and other anomalies underlying …
Persistent link: https://www.econbiz.de/10010334588
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Probabilistic Choice as a Result of Mistakes
Mattsson, Lars-Göran; Weibull, Jörgen W. - 2000
We derive a family of probabilistic choice models including the multinomial logit model, from a microeconomic model in which the decision maker has to make some effort in order to avoid mistakes when implementing any desired outcome. The disutility of this effort enters the decision maker's goal...
Persistent link: https://www.econbiz.de/10010335088
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Choice by iterative search
Nakajima, Daisuke; Masatlioglu, Yusufcan - In: Theoretical Economics 8 (2013) 3, pp. 701-728
When making choices, decision makers often either lack information about alternatives or lack the cognitive capacity to analyze every alternative. To capture these situations, we formulate a framework to study behavioral search by utilizing the idea of consideration sets. Consumers engage in a...
Persistent link: https://www.econbiz.de/10011599496