We consider the meaning of the option price, commonly acknowledged as the preferred ex ante welfare measure, in the rank-dependent expected utility (RDEU) framework. The importance of this pertains to performing benefit-cost analysis when RDEU maximizers are prevalent in society.

While military protocol requires that POWs provide only name, rank, serial number, and date of birth (the so-called Big 4), it is naive to think that all detainees, including terrorists, behave in this fashion. Instead, there is evidence that detainees partially cooperate with their captors by...

This paper shows how an airline monopoly uses refundable and non-refundable tickets to screen consumers who are uncertain about their travel. Our theoretical model predicts that the difference between these two fares diminishes as individual demand uncertainty is resolved. Using an original data...

We analyze decisions made by a group of terrorists and a target government in a zero-sum game in which the terrorists minimize, and the government maximizes, the expected utility of the median voter in the target country. The terrorists' strategy balances the probability and the severity of the...

We show that there is a class of risk lovers who optimally choose a positive level of self-protection investment. In most cases, a risk lover increases his self-protection investment as he becomes less downside risk averse.

We study persuasion in a modified Crawford–Sobel sender–receiver game in which the receiver makes a binary decision to accept or reject a good recommended by the sender. The good's quality and the sender's type (neutral or biased) are not observable to the receiver. These alterations yield a...

We study strategic communication in a sender-receiver gamein which the sender sends a message about the observed quality ofthe good to the receiver who may accept or reject the good without knowing the true quality or the sender's type. The game has infinitely many perfect Bayesian Nash...

Prudence probability premium is defined in the risk apportionment model (Eeckhoudt and Schlesinger, 2006). For an increase in downside risk, we show sufficient conditions for comparing the probability premiums between two individuals when the apportioned risk is small and large.

The authors analyze the optimal network structure of two types of terrorist organizations. In the centralized network, the leadership selects the level of individual effort and the level of group connectivity so as to maximize the expected net welfare of the organization’s membership....