Although the link between risk aversion and diminishing marginal utility of wealth is academically well established, theoretical discussions concerning its empirical validity remain. The presented, review-type paper aims to briefly examine theoretical roots responsible for the different views on...

We design and implement lab experiments, as close as possible to the Ellsberg two-color urn experiment, to evaluate the positive and normative appeal of behavior arising from models of ambiguity-averse preferences. We report three main empirical findings: First, these preference models do not...

We develop a theory of innovation waves, investor sentiment, and merger activity based on Knightian uncertainty. Uncertainty-averse investors are more optimistic on an innovation when they can make contemporaneous investments in multiple uncertain projects. Innovation waves occur when there is a...

This paper develops a tractable dynamic model of competition between two risk-averse portfolio managers who attempt to outperform each other by trading in different stocks, reflecting asset specialization. We characterize explicitly the unique Nash equilibrium portfolio policies, and show that a...

The covered call writing, which entails selling a call option on one's underlying stock holdings, is perceived by investors as a strategy with limited risk. It is a very popular strategy used by individual, professional and institutional investors; moreover, the CBOE developed the Buy Write...

We test the relation between ambiguity aversion and five household portfolio choice puzzles: non-participation in equities, low allocations to equity, home-bias, own-company stock ownership, and portfolio under-diversification. In a representative U.S. household survey, we measure ambiguity...

This paper investigates how loss-aversion affects individuals' decisions on savings and insurance purchase. Specifically, this paper empirically tests if prospect theory's loss aversion decreases insurance demand and increases savings demand. Prospect theory predicts that boundedly rational...

We consider two semiparametric models for the weight function in a biased sample model. The object of our interest parametrizes the weight function, and it is either Euclidean or non Euclidean. One of the models discussed in this paper is motivated by the estimation the mixing distribution of...

We develop a structural econometric model to elicit household-specific expectations about future financial asset returns and risk attitudes by using data on observed portfolio holdings and self-assessed willingness to bear financial risk. Our framework assumes that household portfolios are...

The literature on risk tolerance overwhelmingly justifies the use of questionnaires based on validity and reliability or psychometric testing, but there has been little research examining the relation between questions and actual investor portfolio behavior. This study examines risk tolerance...