This chapter, originally written as a consequence of the terrorist attacks of September 11, 2001, provides an elementary introduction to the concepts of risk and insurance. The main difficulty lies in assessing probabilities to judge whether premiums are appropriate and, in particular, for...

Setting CEO compensation is a critical but difficult task. Thus, given the lack of transparency that frequently accompanies such decisions, it is important to know whether it is subject to bias. We document the presence of illusory correlation in CEO compensation. By this we mean the use of...

In most naturally occurring situations, success depends on both skill and chance. We compare experimental market entry decisions where payoffs depend on skill alone and combinations of skill and luck. We find more risk taking with skill and luck as opposed to skill alone, particularly for males,...