Assuming a risk-neutral bank and assuming household utility to be exponential, we show how under information symmetry the covariance of income and loan repayments may explain higher household borrowings than in the case without default option. Under ex post information asymmetry and positive...

The ability to uncover preferences from choices is fundamental for both positive economics and welfare analysis. Overwhelming evidence shows that choice is stochastic, which has given rise to random utility models as the dominant paradigm in applied microeconomics. However, as is well known, it...

The ability to uncover preferences from choices is fundamental for both positive economics and welfare analysis. Overwhelming evidence shows that choice is stochastic, which has given rise to random utility models as the dominant paradigm in applied microeconomics. However, as is well known, it...

The ability to uncover preferences from choices is fundamental for both positive economics and welfare analysis. Overwhelming evidence shows that choice is stochastic, which has given rise to random utility models as the dominant paradigm in applied microeconomics. However, as is well known, it...

This paper suggests insurance represents a quid pro quo transaction across states of the world and is purchased to transfer income to a state where it is more valued. It also suggests that gambling represent a similar quid pro quo transaction across states but that consumers gamble to transfer...

This paper empirically examines the behavioral precautionary saving hypothesis by Koszegi and Rabin (2009) stating that uncertainty about future income triggers saving because of loss aversion. We extend their theoretical analysis to also consider the internal margin, i.e., the strength, of loss...

In fifteen European countries, China, and the US, stocks and business equity as a share of total household assets are represented by an increasing and convex function of income/wealth. A parsimonious model fitted to the data shows why background labor-income risk can explain much of this...

Evidence on loss aversion and the endowment effect suggests that people evaluate outcomes with respect to a reference point. Yet little is known about what determines reference points. We conduct two experiments that show that reference points are determined by expectations. In the first...

This research examined whether people can accurately predict the risk preferences of others.Three experiments featuring different designs revealed a systematic bias: that participants predicted others to be more risk seeking than themselves in risky choices, regardless of whether the choices...

This research explores whether there are systematic cross-national differences in choice-inferred risk preferences between Americans and Chinese. Study 1 found(a) that the Chinese were signi®cantly more risk seeking than the Americans, yet(b) that both nationals predicted exactly the opposite...