The prospect theory is one of the most popular decision-making theories. It is based on the S-shaped utility function …, unlike the von Neumann and Morgenstern (NM) theory, which is based on the concave utility function. The S-shape brings in … mathematical challenges: simple extensions and generalizations of NM theory into the prospect theory cannot be frequently achieved …

Employing an international sample of 10,012 firms across 62 economies spanning 2005–2017, we show that climate risk is … negatively associated with corporate innovation activities. This finding is consistent with increased managerial risk aversion … when managers perceive higher climate risk, leading to lower innovativeness. Through risk-buffering mechanisms, the …