This paper presents a dynamic framework which implements risk as a continuous variable into the proximity-concentration trade-of concept. Additionally firms have the possibility to postpone their investment decision which gives them the possibility to collect further information about the...

This paper studies the impact of counter-party default risk of forward contracts on a firm's production and hedging decisions. Using a model of a risk-averse competitive firm under price uncertainty, it derives several fundamental results. If expected profits from forward contracts are zero, the...

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this...

According to disposition effect theory, people hold losing investments too long. However, many investors eventually sell at a loss, and little is known about which psychological factors contribute to these capitulation decisions. This study integrates prospect theory, utility maximization...

We examine insurance markets with two types of customers: those who regret suboptimal decisions and those who don.t. In this setting, we characterize the equilibria under hidden information about the type of customers and hidden action. We show that both pooling and separating equilibria can...

The budget constraint requires that, eventually, consumption must adjust fully to any permanent shock to income. Intuition suggests that, knowing this, optimizing agents will fully adjust their spending immediately upon experiencing a permanent shock. However, this paper shows that if consumers...

We analyze competitions where the contestants evaluate each other and find the first contestant to be disadvantaged. We suspect that this is due to information diffusion, Bayesian belief updating taking place in course of the contest and initial uncertainty about a contestant's relative quality.

This paper investigates the processing of repeated complex information. The focus of this study is, whether additional information and the introduction of performance-based payoffs have an influence on judgement. Therefore, an experiment is designed to investigate the degree of precision and...

We report an experiment in which subjects are not indifferent between real-money lotteries implemented with randomization devices that are equivalent under the Reduction Axiom. Instead choice behavior is consistent with subjective distortion of conditional probability, and this persists in...

This paper deals with nonparametric inference for second order stochastic dominance of two random variables. If their distribution functions are unknown they have to be inferred from observed realizations. Thus, any results on stochastic dominance are in uenced by sampling errors. We establish...