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Toward a Behavioral Theory of Real Options : Noisy Signals, Bias, and Learning

Posen, Hart E. - 2020

We develop a behavioral theory of real options that relaxes the informational and behavioral assumptions underlying … applications of financial options theory to real assets. To do so, we augment real option theory's focus on uncertain future asset … values (prospective uncertainty) with feedback learning theory that considers uncertain current asset values (contemporaneous …

Persistent link: https://www.econbiz.de/10012856401

Information Inertia

Illeditsch, Philipp K. - 2020

We show that aversion to risk and ambiguity leads to information inertia when investors process public news about assets. Optimal portfolios do not always depend on news that is worse than expected; hence, the equilibrium stock price does not reflect this bad news. This informational inefficiency...

Persistent link: https://www.econbiz.de/10012857251

Linking Information, Knowledge and Evolutionary Growth : A Multilevel Interplay between Natural Selection and Informed Intervention

Hilbert, Martin - 2014

and knowledge. The link is found by relating two concepts from evolutionary theory, namely the Price equation and bet …

Persistent link: https://www.econbiz.de/10013058556

Portfolio Separating Distributions and Those Missed Asset Pricings

Yuan, Yiyong - 2014

The portfolio separating distribution is sufficient and necessary for a preference-free optimal choice only if the solution is assumed to be constant a priori. The portfolio separating condition is generalized. The new distribution class allowing for correlation uncertainty is defined as...

Persistent link: https://www.econbiz.de/10013040169

Do you Trust your Insurer? Ambiguity about Contract Nonperformance and Optimal Insurance Demand

Peter, Richard - 2018

We study optimal insurance demand for a risk- and ambiguity-averse consumer under ambiguity about contract nonperformance. Ambiguity aversion lowers optimal insurance demand and the consumer's degree of ambiguity aversion is negatively associated with the optimal level of coverage. A more...

Persistent link: https://www.econbiz.de/10012928782

The Reassurance Effect : Paradoxical Preferences in Information Acquisition

Somasundaram, Jeeva; Wathieu, Luc - 2021

Conventionally, information acquisition is motivated by its instrumental value – the value derived from adapting action to new knowledge. In this paper, we explore the notion of reassurance, whereby people seek to acquire information in order to remove lingering doubts or fears. We formulate...

Persistent link: https://www.econbiz.de/10013235132

Rethinking the Role of the Representativeness Heuristic in Macroeconomics and Finance Theory

Frydman, Roman; Tabor, Morten - 2021

We propose a novel interpretation and formalization of Kahneman and Tversky's findings in the Linda experiment which implies that subjects are rational in the sense of Muth's hypothesis and provides an approach to specifying rational assessment of uncertainty in macroeconomic models....

Persistent link: https://www.econbiz.de/10013235974

Information, Uncertainty and the Cost of Capitalin a Mean-Variance Efficient Market

Johnstone, David - 2015

Before information φ arrives, market observers must be uncertain whether the stock price conditioned on φ will be higher or lower than the current price. Otherwise there is an obvious arbitrage opportunity. By assuming this minimal condition of efficient markets, it is shown under the...

Persistent link: https://www.econbiz.de/10013035935

Export and Benefits of Hedging in Emerging Economies

Broll, Udo - 2010

We study the impact of exchange rate risk upon export production within an emerging economy lacking in currency forward markets. However there exists a financial asset whose price is correlated with the relevant foreign currency. We present conditions under which export production is stimulated...

Persistent link: https://www.econbiz.de/10013147872

Intertemporal Substitution and Recursive Smooth Ambiguity Preferences

Hayashi, Takashi - 2010

In this paper, we establish an axiomatically founded generalized recursive smooth ambiguity model that allows for a separation among intertemporal substitution, risk aversion, and ambiguity aversion. We axiomatize this model using two approaches: The second-order act approach à la Klibanoff,...

Persistent link: https://www.econbiz.de/10013148061