STOCHASTIC DOMINANCE AND BEHAVIOR TOWARDS RISK: THE MARKET FOR ISHARES

2012 ◽  
Vol 07 (01) ◽  
pp. 1250005 ◽  
Author(s):  
DOMINIC GASBARRO ◽  
WING-KEUNG WONG ◽  
J. KENTON ZUMWALT
Keyword(s):  
Stochastic Dominance ◽  
Utility Functions ◽  
Investor Behavior ◽  
Risk Averse ◽  
Risk Seeking ◽  
Bull Markets ◽  
Seeking Behavior ◽  
Return Distributions ◽  
And Behavior ◽  
Positive Return

Prospect theory suggests that risk seeking can occur when investors face losses and thus an S-shaped utility function can be useful in explaining investor behavior. Using stochastic dominance procedures, Post and Levy (2015) find evidence of reverse S-shaped utility functions. This is consistent with investors exhibiting risk-seeking tendencies in bull markets and risk aversion in bear markets. We use both ascending and descending stochastic dominance procedures to test for risk-averse and risk-seeking behavior. By partitioning iShares' return distributions into negative and positive return regions, we find evidence of all four utility functions: concave, convex, S-shaped and reverse S-shaped.

Nitrogen-Fixing Winter Cover Crops and Production Risk: A Case Study for No-Tillage Corn

1998 ◽  
Vol 30 (1) ◽  
pp. 163-174 ◽  
Author(s):  
James A. Larson ◽  
Roland K. Roberts ◽  
Donald D. Tyler ◽  
Bob N. Duck ◽  
Stephen P. Slinsky
Keyword(s):  
Cover Crops ◽  
Stochastic Dominance ◽  
Nitrogen Fertilization ◽  
Risk Averse ◽  
Production Risk ◽  
Risk Seeking ◽  
Wide Range ◽  
Seeking Behavior ◽  
Net Revenue ◽  
Applied Nitrogen

AbstractWinter legumes can substitute for applied nitrogen fertilization of corn. Stochastic dominance was used to order net revenues from legume and applied nitrogen alternatives. Stochastic dominance orderings indicate that systems combining vetch with low applied nitrogen fertilization (50 and 100 pounds/acre, respectively) were risk inefficient. By contrast, vetch and 150 pounds/acre applied nitrogen maximized expected net revenue and was risk efficient for a wide range of risk-averse and risk-seeking behavior. Farmers with these risk attitudes may not reduce applied nitrogen if they switch to a vetch cover. Extremely risk-averse or risk-seeking farmers would not prefer winter legumes.

Too Much to Lose: The Influence of Emotional Attachment on Risk Aversion

2020 ◽  
Author(s):  
Andy Lisheng Chan
Keyword(s):  
Risk Aversion ◽  
Loss Aversion ◽  
Risk Averse ◽  
Emotional Attachment ◽  
Risk Seeking ◽  
Seeking Behavior ◽  
The Stability ◽  
Loss Frame ◽  
Gain Frame ◽  
Mean Risk

Current literature suggests that the generalizability of the loss aversion hypothesis and in tandem risk aversion and framing effects may be less stable than previously specified. Hence, the current study seeks to investigate emotional attachment as a potential moderator of loss and subsequently risk aversion, helping inform both fields of economics and psychology in driving better policy and decision-making. 64 Temasek Polytechnic students, aged 16-23, were manipulated with either high or low emotional attachment towards an item and presented with an adapted Asian Disease Paradigm (Tversky & Kahneman, 1981) in either a gain or loss frame as a measure of the individual’s mean risk rating. ANOVA analysis revealed the stability of the loss aversion hypothesis identified in past literature – risk-averse behavior increased when a gain frame was presented, and risk-seeking behavior increased when a loss frame was presented. Critically, emotional attachment was found to moderate loss and risk aversion, validating past theoretical derivations (Ariely, Huber, & Wertenbroch, 2005; Novemsky & Kahneman, 2005): when emotional attachment was higher towards an item, participants displayed more risk-seeking behavior and more risk-averse behavior when in the context of losses and gains respectively, and displayed less risk-seeking and risk-averse behavior when they were less emotionally attached to an item in the same context of a gamble. Theoretical and practical implications of these findings are discussed in the context of nudging.

scholarly journals Does risk-sensitivity transfer across movements?

2013 ◽  
Vol 109 (7) ◽  
pp. 1866-1875 ◽  
Author(s):  
Megan K. O'Brien ◽  
Alaa A. Ahmed
Keyword(s):  
Decision Making ◽  
Movement Planning ◽  
Whole Body ◽  
Risk Sensitivity ◽  
Risk Averse ◽  
Body Movements ◽  
Risk Seeking ◽  
Risk Environments ◽  
Arm Reaching ◽  
Seeking Behavior

An intriguing finding in motor control studies is the marked effect of risk on movement decision making. However, there are inconsistent reports of risk-sensitivity across different movements and tasks, with both risk-seeking and risk-averse behavior observed. This raises the question of whether risk-sensitivity in movement decision making is context dependent and specific to the movement or task being performed. We investigated whether risk-sensitivity transfers between dissimilar movements within a single task. Healthy young adults made arm-reaching movements or whole-body leaning movements to move a cursor as close to the edge of a virtual cliff as possible without moving beyond the edge. They received points on the basis of the cursor's final proximity to the cliff edge. Risk was manipulated by increasing the point penalty associated with the cliff region and/or adding Gaussian noise to the cursor. We compared subjects' movement endpoints with endpoints predicted by a subject-specific, risk-neutral model of movement planning. Subjects demonstrated risk-seeking behavior in both movements that was consistent across risk environments, moving closer to the cliff than the model predicted. However, subjects were significantly more risk-seeking in whole-body movements. Our results present the first evidence of risk-sensitivity in whole-body movements. They also demonstrate that the direction of risk-sensitivity (i.e., risk-seeking or risk-averse) is similar between arm-reaching and whole-body movements, although degree of risk-sensitivity did not transfer from one movement to another. This finding has important implications for the ability of quantitative descriptions of decision making to generalize across movements and, ultimately, decision-making contexts.

scholarly journals Banks’ Interest Rate Risk and Search for Yield: A Theoretical Rationale and Some Empirical Evidence

2018 ◽  
Vol 19 (3) ◽  
pp. 330-350 ◽  
Author(s):  
Christoph Memmel ◽  
Atılım Seymen ◽  
Max Teichert
Keyword(s):  
Interest Rate ◽  
Interest Rate Risk ◽  
Expected Returns ◽  
Risk Averse ◽  
Expected Return ◽  
Risk Seeking ◽  
Rate Risk ◽  
Seeking Behavior ◽  
The Common ◽  
Relationship Of

Abstract We investigate German banks’ exposure to interest rate risk. In finance, higher demand for a risky asset is typically associated with higher expected return. However, employing a utility function which implies both risk-averse and risk-seeking behavior depending on the level of profits, we show that this relationship may get weaker and even change its sign at low profit levels. For the period 2005-14, we find not only the common positive relationship of higher expected returns and rising interest rate exposure but also that this relationship does become weaker with falling operative income, its sign eventually changing.

scholarly journals Debt Matters: The Firms Optimization Problem With Financial Distress

2011 ◽  
Vol 1 (10) ◽  
Author(s):  
Scott M. Gilpatric ◽  
Richard V. Butler
Keyword(s):  
Financial Distress ◽  
Optimization Problem ◽  
Value Function ◽  
Risk Averse ◽  
Firm Risk ◽  
Risk Seeking ◽  
Financial Restructuring ◽  
Seeking Behavior ◽  
The Value Function ◽  
Real Costs

We argue that firms in financial distress face real costs associated with financial restructuring, in addition to the agency costs identified elsewhere in the literature. Distress costs arise from the presence of debt in the firms financial structure. Because firms facing uncertain demand will act to minimize expected distress costs even when not near the point of defaulting on debts, the prospect of facing distress costs has implications for the optimization problem of every firm. Our model shows that distress costs have a nonlinear effect on the value function of the firm. This effect may make the firm risk averse or risk seeking, depending on the magnitude of expected distress costs, with very different implications for its output decisions. Our results bridge a gap between the emphasis of economists on risk aversion induced by financial distress and the view of legal scholars that financial distress induces risk-seeking behavior.

Returns and Investor Behavior in Taiwan: Does Overconfidence Explain this Relationship?

2005 ◽  
Vol 08 (03) ◽  
pp. 405-446 ◽  
Author(s):  
Mei-Chen Lin
Keyword(s):  
Market Volatility ◽  
Investor Behavior ◽  
Bull Markets ◽  
Growth Stocks ◽  
And Behavior ◽  
The Relationship

This paper examines whether overconfidence can explain the relationship between performance and behavior of investors in Taiwan. Different from prior research that used a specific sample of individuals trading records, this work focuses on aggregate investor behavior to know whether overconfidence is a market-wide phenomenon. It is found that overconfident investors will trade more aggressively, and the excessive trading of overconfident investors results in the observed excessive market volatility. However, overconfidence effect exists only following bull markets. After a period of stock gains, overconfident traders tend to title their investment toward smaller-cap and growth stocks, consistent with the prediction of overconfident hypothesis that as investors become overconfident, they underestimate risk and thereby trade in riskier stocks.

Loyalty program in Africa: risk-seeking and risk-averse adventurers

2014 ◽  
Vol 69 (2) ◽  
pp. 137-157 ◽  
Author(s):  
Shogo Mlozi
Keyword(s):  
Consumer Behavior ◽  
Consumer Products ◽  
Loyalty Programs ◽  
Risk Averse ◽  
Loyalty Program ◽  
Content Type ◽  
Risk Seeking ◽  
Proposed Model ◽  
First Time ◽  
The Relationship

Purpose – This article aims to test the relationship between expected attractiveness-satisfaction-loyalty for international adventure tourists visiting Tanzania. The proposed model is based on travel consumer behavior theoretical constructs extracted from the literature. Design/methodology/approach – This article aims to test the relationship between expected attractiveness-satisfaction-loyalty for international adventure tourists visiting Tanzania. The proposed model is based on travel consumer behavior theoretical constructs extracted from the literature. Findings – The findings for overall model differed from the moderating factors of high risk, low risk, first-time visit and repeat visit. Also, the results are interesting when satisfaction is tested as a mediator. Practical implications – Practitioners could consider the fact that repeat visits may change tourists’ perceptions toward destination and may even increase their inclination to take on risks. This may impact innovation of consumer products in tourism. Also, policy makers could benefit on how loyalty programs can be developed to increase performance. Originality/value – The study offers specific strategic recommendations toward different groups of tourists (i.e. first-time, repeat visitors, risk averse, risk seeking) and proposes logic for setting up a loyalty program as a long-term strategy for success.

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