scholarly journals Investment Risk Profiling Utilizing Business Resource Slack

2011 ◽  
Vol 3 (8) ◽  
Author(s):  
Cyrus Safdari ◽  
Nancy J. Scannell
Keyword(s):  
Investment Decision ◽  
Risk Tolerance ◽  
Investment Risk ◽  
Risk Averse ◽  
Tripartite Model ◽  
Font Size ◽  
Risk Seeking ◽  
Risk Profiling ◽  
Risk Neutral ◽  
Resource Slack

<p class="MsoBlockText" style="margin: 0in 45.1pt 0pt 37.4pt;"><span style="font-style: normal; font-size: 10pt; mso-bidi-font-size: 11.0pt;"><span style="font-family: Times New Roman;">Financial investor classes are commonly depicted via a tripartite model that distinguishes among risk averse, risk neutral and risk seeking behaviors. This paper contributes to the literature by capturing the essence of risk tolerance in the context of a profit-maximizing firm&rsquo;s investment decision vis-&agrave;-vis the business&rsquo; resource slack. The paradigm introduced in this paper contextualizes risk profiling in a rigorous manner which should augment treatments relayed in standard principles of finance textbooks. This paper illustrates that it is the existence or absence of resource slack that influences, if not dictates, a business&rsquo; risk disposition.</span></span></p>

scholarly journals User Equilibrium Analysis Considering Travelers’ Context-Dependent Route Choice Behavior on the Risky Traffic Network

2020 ◽  
Vol 12 (17) ◽  
pp. 6706
Author(s):  
Qinghui Xu ◽  
Xiangfeng Ji
Keyword(s):  
High Probability ◽  
Choice Behavior ◽  
Route Choice ◽  
User Equilibrium ◽  
Equilibrium Analysis ◽  
Risk Averse ◽  
Risk Seeking ◽  
Route Choice Behavior ◽  
Risk Neutral ◽  
Context Dependent

This paper studies travelers’ context-dependent route choice behavior in a risky trafficnetwork from a long-term perspective, focusing on the effect of travelers’ salience characteristics. In particular, a flow-dependent salience theory is proposed for this analysis, where the flow denotes the traffic flow on the risky route. In the proposed model, travelers’ attention is drawn to the salient travel utility, and the objective probabilities of the state of the world are replaced by the decision weights distorted in favor of this salient travel utility. A long-run user equilibrium will be achieved when no traveler can improve his or her salient travel utility by unilaterally changing routes, termed salient user equilibrium, which extends the scope of the Wardropian user equilibrium. Furthermore, we prove the existence and uniqueness of this salient user equilibrium. Finally, numerical studies demonstrate our theoretical findings. The equilibrium results show non-intuitive insights into travelers’ route choice behavior. (1) Travelers can be risk-seeking (the travel utility of a risky route is small with a relatively high probability), risk-neutral (in special situations), or risk-averse (the travel utility of a risky route is large with a relatively high probability), which depends on the salient state. (2) The extent of travelers’ risk-seeking or risk-averse behavior depends on their extent of salience bias, while the risk-neutral behavior is irrelative to this salience bias.

Personal ruin versus corporate profit: why individual risk attitudes lessen economic outcomes

2012 ◽  
Vol 52 (1) ◽  
pp. 301
Author(s):  
Matthew B. Welsh ◽  
Stephen (Steve) H. Begg
Keyword(s):  
Prospect Theory ◽  
Utility Theory ◽  
Oil And Gas ◽  
Risk Tolerance ◽  
Petroleum Exploration ◽  
Individual Risk ◽  
Risk Averse ◽  
Risk Neutral ◽  
Corporate Risk ◽  
The Impact

Previous work on utility theory has highlighted value lost as a result of companies’ non-risk-neutral behaviour. Prospect theory, however, extends utility theory to describe how individuals make decisions under uncertainty. Key features include: use of decision weights rather than probabilities, and asymmetry between losses and gains, with losses weighted more heavily. Both effects impact on peoples’ risk tolerance (i.e., how risk averse or risk seeking they are). Given the petroleum industry’s reliance on decisions made under uncertainty, prospect theory can significantly impact on the value of decisions. This paper presents multiple studies highlighting the impact of prospect theory on decision value and, in particular, the changes in value resulting from differences between individual and company risk tolerances. Results indicate that prospect theory effects cause changes in risk tolerance, resulting in lost value compared to risk-neutral decisions and that this is strongest when probability of success is low—as is often the case in petroleum exploration. Differences between individual and corporate risk tolerances also impact value. The presented studies, however, demonstrate why it can benefit an individual to be risk averse even when their employer would prefer risk-neutrality, as this reduces the chance of personal ruin and increases personal expected value (EV). Finally, the implications for oil and gas decision makers are discussed. It is argued that corporate risk tolerances are, in fact, aggregated individual risk tolerances, which should be compared to ideal corporate risk tolerances calculated using the chance of ruin for a company with a particular portfolio of investments.

Product and After-Sales Maintenance Service Pricing Decisions in a Risk-Averse Supply Chain

2020 ◽  
Vol 37 (06) ◽  
pp. 2050031 ◽  
Author(s):  
Azmat Ullah ◽  
Wenpo Huang ◽  
Wei Jiang
Keyword(s):  
Demand Uncertainty ◽  
Risk Tolerance ◽  
Uncertain Demand ◽  
Risk Averse ◽  
Product Price ◽  
Repair Service ◽  
Tolerance Level ◽  
Special Cases ◽  
Risk Neutral ◽  
Free Replacement

After-sales service on a product could be a lucrative source of profits however it is notoriously difficult to manage due to uncertain demand from consumers, and its complex organization such as either to provide warranty or maintenance contract or repair service. This paper focuses on a problem where the manufacturer sells a repairable product while an agent provides after-sales service under uncertain demand. Due to demand volatility, either manufacturer or agent or both the players are risk-averse toward their decisions. The goal of this paper is to design various after-sales service strategies where the optimal price of repair or maintenance contract for the agent whereas the optimal product price for the manufacturer are explicitly determined such that the utility of both players can be maximized. Moreover, the impacts of risk-preference and demand uncertainty are investigated on both players’ price decisions, demand level, and their utility function. Also, the impacts of the agent’s warranty service on product price as well as repair and maintenance contract price are investigated. The interaction between the manufacturer and agent is performed under non-cooperative game where the manufacturer is the leader, and the agent is the follower. The analytical results show that when both players are risk-averse, they should adjust their prices with demand uncertainty and risk-tolerance level in order to maintain the demand stability and get more utility. Further, we consider some special cases where the risk-tolerance level of the manufacturer has an impact on the risk-neutral agent’s decisions whereas the risk-tolerance level of an agent does not have any impact on the risk-neutral manufacturer’s decisions. The analysis also shows that there is a significant impact of the agent’s free-replacement renewing warranty (FRRW) on repair and maintenance price decision if both players are risk-averse. A numerical example is presented to further illustrate the results and related issues.

scholarly journals Green Supply Chain Game Model and Contract Design: Risk Neutrality vs. Risk Aversion

2021 ◽  
Author(s):  
Jianhu Cai ◽  
Huazhen Lin ◽  
Xiaoqing Hu ◽  
Minyan Ping
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Cost Sharing ◽  
Wholesale Price ◽  
Risk Tolerance ◽  
Retail Price ◽  
Green Supply Chain ◽  
Risk Averse ◽  
Equilibrium Solutions ◽  
Risk Neutral

Abstract This paper incorporates the players’ risk attitudes into a green supply chain (GSC) consisting of a supplier and a retailer. The supplier conducts production and determines the green level and wholesale price as a game leader, the retailer sells green products to consumers and determines the retail price as a follower. Equilibrium solutions are derived, and the influence of risk aversion on the GSC is examined. Our results show that, for the centralized GSC, risk aversion lowers the green level and the retail price; while for the decentralized GSC, risk aversion lowers the wholesale price and the retail price, but it may induce the supplier to increase the green level given a large risk tolerance of the supplier. Meanwhile, the risk-averse decentralized GSC may obtain more expected profit than the risk-neutral decentralized GSC. Furthermore, this paper designs a revenue-and-cost-sharing joint contract to coordinate the risk-neutral GSC, and such a contract can improve the risk-averse GSC under specific conditions.

Scaling and Adaptive Asset Allocation

2019 ◽  
Keyword(s):  
Asset Allocation ◽  
Investment Decision ◽  
Investment Risk ◽  
Speculative Bubbles ◽  
Time Horizons ◽  
Investment Decision Making ◽  
Time Diversification ◽  
Mean And Variance ◽  
Time Specific ◽  
Mean Variance

In this article, the author reminds us again that return mean and variance are not enough. Appropriate investment risk-bearing scales with surplus over future withdrawal commitments, as well as with investment return characteristics. This framework provides for the integration of financial planning and investment decision-making. Its time-varying risk aversion with the ratio of investments to surplus also provides an opportunity for use of dynamic strategies, though speculative bubbles require compensating inputs to avoid excessive allocation extremes. Appropriate risk-bearing can also scale with functions of shortfall probability to deal with time-specific funding requirements. The probability of avoiding shortfall from an initial surplus over longer time horizons may scale close to the square root of time, creating an illusion of time diversification. In contrast, from an initial surplus deficit, minimizing shortfall probability is akin to playing Russian roulette. Allocations based on minimized shortfall probability can be usefully blended with mean–variance allocations, especially for 5- to 15-year time horizons.

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.

scholarly journals OPTIMAL OUTCOME SHARING WITH A CONSORTIUM OF CONTRACTORS

2015 ◽  
Vol 22 (5) ◽  
pp. 655-665 ◽  
Author(s):  
S. Mahdi HOSSEINIAN ◽  
David G. CARMICHAEL
Keyword(s):  
Risk Aversion ◽  
Risk Attitude ◽  
Risk Averse ◽  
Optimal Outcome ◽  
Original Solution ◽  
Project Outcome ◽  
Risk Neutral ◽  
Current Practices

Where a consortium of contractors is involved, there exist no guidelines in the literature on what the outcome sharing arrangement should be. The paper addresses this shortfall. It derives the optimal outcome sharing arrangement for risk-neutral and risk-averse contractors within the consortium, and between the consortium and a risk-neutral owner. Practitioners were engaged in a designed exercise in order to validate the paper’s propositions. The paper demonstrates that, at the optimum: the proportion of outcome sharing among contractors with the same risk-attitude should reflect the levels of their contributions; the proportion of outcome sharing among contractors with the same level of contribu­tion should be lower for contractors with higher levels of risk aversion; a consortium of risk-neutral contractors should receive or bear any favourable or adverse project outcome respectively; and the proportion of outcome sharing to a con­sortium of risk-averse contractors should reduce, and the fixed component of the consortium fee should increase, when the contractors become more risk-averse or the level of the project outcome uncertainty increases. The paper proposes an original solution to the optimal sharing problem in contracts with a consortium of contractors, thereby contributing to current practices in contracts management.

The stochastic Mitra–Wan forestry model: risk neutral and risk averse cases

2014 ◽  
Vol 115 (2) ◽  
pp. 175-194 ◽  
Author(s):  
Adriana Piazza ◽  
Bernardo K. Pagnoncelli
Keyword(s):  
Risk Averse ◽  
Model Risk ◽  
Risk Neutral

Mobile investment technology adoption among investors

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Lu Fan
Keyword(s):  
Technology Adoption ◽  
Financial Services ◽  
Diffusion Of Innovations ◽  
Mobile Apps ◽  
Investment Decision ◽  
Risk Tolerance ◽  
Content Type ◽  
Investment Decision Making ◽  
Mobile Financial Services ◽  
Money Transfers

PurposeThe purpose of this study is to examine investors' internal characteristics, including investment literacy, risk tolerance and familiarity with mobile financial services, as antecedents of mobile investment technology adoption among American investors.Design/methodology/approachUsing the 2018 National Financial Capability Study and its supplemental Investor Survey, this study examined antecedents, including investors' internal characteristics, in relation to mobile investment technology adoption. Nested logistic regression analyses were performed for adopting mobile apps for investment decisions and for investment trading.FindingsThis study found that objective and subjective investment knowledge, experience using mobile banking for payments and money transfers, and certain ownerships of investment vehicles (such as whole-life insurance policies and ETFs) were significant determinants of mobile investment decision-making. On the other hand, subjective investment literacy, risk tolerance, familiarity with mobile financial services, and portfolio value, as well as certain types of investment vehicles were significantly associated with mobile investment trading.Originality/valueThis study is among the first to examine investors' investment literacy, risk tolerance and familiarity with mobile financial services as investors' internal characteristics in relation to mobile investment technology adoption. The diffusion of innovations theory and related concepts provide theoretical support for this study. The findings provide new insights into mobile investing as an emerging FinTech subject and provide implications for practitioners and FinTech developers, as well as contribute to the literature of mobile investment service adoption among retail investors.

Cutoff Threshold Decisions for Classification Algorithms with Risk Aversion

2021 ◽  
Author(s):  
Andrea C. Hupman
Keyword(s):  
Risk Aversion ◽  
Risk Attitude ◽  
Classification Algorithm ◽  
Classification Algorithms ◽  
Risk Averse ◽  
Optimal Cutoff ◽  
Data Set ◽  
Risk Neutral ◽  
Bayes Algorithm ◽  
Cutoff Threshold

Classification algorithms predict the class membership of an unknown record. Methods such as logistic regression or the naïve Bayes algorithm produce a score related to the likelihood that a record belongs to a particular class. A cutoff threshold is then defined to delineate the prediction of one class over another. This paper derives analytic results for the selection of an optimal cutoff threshold for a classification algorithm that is used to inform a two-action decision in the cases of risk aversion and risk neutrality. The results provide insight to how the optimal cutoff thresholds relate to the associated costs and the sensitivity and specificity of the algorithm for both the risk neutral and risk averse decision makers. The optimal risk averse threshold is not reliably above or below the optimal risk neutral threshold, but the relation depends on the parameters of a particular application. The results further show the risk averse optimal threshold is insensitive to the size of the data set or the magnitude of the costs, but instead is sensitive to the proportion of positive records in the data and the ratio of costs. Numeric examples and sensitivity analysis derive further insight. Results show the percent value gap from a misspecified risk attitude increases as the specificity of the classification algorithm decreases.

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