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.

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.

scholarly journals Choices in the 11–20 Game: The Role of Risk Aversion

Games ◽  
2018 ◽  
Vol 9 (3) ◽  
pp. 53
Author(s):  
King Li ◽  
Kang Rong
Keyword(s):  
Nash Equilibrium ◽  
Risk Aversion ◽  
Risk Averse ◽  
Lab Experiment ◽  
Risk Neutral ◽  
Beauty Contest ◽  
Game Players

Arad and Rubinstein (2012, AER) proposed the 11–20 money request game as an alternative to the P beauty contest game for measuring the depth of thinking. In this paper, we show theoretically that in the Nash equilibrium of the 11–20 game players are more likely to choose high numbers if they are risk-averse rather than risk neutral. Hence, the depth of thinking measured in the 11–20 game is biased by risk aversion. Based on a lab experiment, we confirm this hypothesis empirically.

scholarly journals An optimal time incentive/disincentive -based compensation in contracts with multiple agents

2016 ◽  
Vol 16 (4) ◽  
pp. 35-53 ◽  
Author(s):  
S. Mahdi Hosseinian
Keyword(s):  
Risk Aversion ◽  
Completion Time ◽  
Optimization Problem ◽  
Risk Attitude ◽  
Theoretical Development ◽  
Optimal Time ◽  
Risk Averse ◽  
Multiple Agents ◽  
Time Saving ◽  
Project Completion

This paper establishes an optimal time incentive/disincentive-based compensation in a contract between a principal and a team of agents. The establishment is based on solving an optimization problem. In order to validate the paper's theoretical development practitioners were engaged in a designed exercise. The paper demonstrates that, at the optimum: the proportion of time incentive/disincentive compensation among agents with the same risk-attitude should reflect the levels of their contributions; the proportion of time incentive/disincentive among agents with the same level of contribution should be lowered for agents with higher levels of risk aversion; and the proportion of time incentive/disincentive to a team of risk averse agents should reduce, and the fixed component of the team fee should increase, when the agents in the team become more risk-averse or the level of the uncertainty in project completion time increases. The paper’s outcome provides guidance to those involved in contracts design for choosing the best way to reward (penalise) multiple agents, form a team, and allow for any time saving (overrun) through the terms of a contract.    

scholarly journals Why and How Does a Supplier Choose Factoring Finance?

2020 ◽  
Vol 2020 ◽  
pp. 1-14
Author(s):  
Chunying Tian ◽  
Dongyan Chen ◽  
Zhaobo Chen ◽  
Ding Zhang
Keyword(s):  
Supply Chain ◽  
Credit Risk ◽  
Trade Credit ◽  
Risk Attitude ◽  
Decision Models ◽  
Risk Averse ◽  
Financial Benefit ◽  
Risk Neutral

Suppliers offering trade credit to the downstream retailers have to face many problems, such as receivables management, capital occupancy, and buyer’s credit risk. Many of them choose factoring finance to solve those problems simultaneously. This paper develops several supply chain decision models to show the benefits a supplier can obtain from the main functions of factoring and how he should choose between recourse factoring and nonrecourse factoring. In particular, we identify the conditions on which factoring may bring benefits (including financial benefit, guarantee benefit, and receivables management benefit) to the supplier. The supplier’s choice between recourse and nonrecourse factoring relies on his risk attitude. Given that the supplier is risk-neutral and the factoring fees are acceptable, recourse factoring is preferred when the factoring finance ratio is relatively high; otherwise, nonrecourse factoring is preferred. However, if the supplier is risk-averse, his preference for the two factoring schemes under different finance ratios may change when the risk constraints become stricter. If the target profit is lower than a certain level, the supplier’s financial choice will switch from recourse factoring to nonrecourse factoring in the case finance ratio is relatively low; otherwise, his financial choice switches from nonrecourse factoring to recourse factoring in the case finance ratio is relatively high.

scholarly journals The development of risk aversion and prudence in Chinese children and adolescents

2021 ◽  
Author(s):  
Timo Heinrich ◽  
Jason Shachat
Keyword(s):  
Risk Aversion ◽  
Children And Adolescents ◽  
Risk Preferences ◽  
Choice Task ◽  
Chinese Children ◽  
Binary Choice ◽  
Risk Averse ◽  
Positive Correlation ◽  
Risk Neutral ◽  
Chinese Children And Adolescents

AbstractThis study experimentally evaluates the risk preferences of children and adolescents living in an urban Chinese environment. We use a simple binary choice task that tests risk aversion, as well as prudence. This is the first test for prudence in children and adolescents. Our results reveal that subjects from grades 5 to 11 (10 to 17 years) make mostly risk-averse and prudent choices. The choices of 3rd graders (8 to 9 years) do not differ statistically from risk neutral benchmarks, but at the same time they make mostly prudent choices. We also find evidence for a transmission of risk preferences. There is positive correlation between all children’s and their parents’ tendency to make risk-averse choices. There is also positive correlation between girls’ and their parents’ tendency to make prudent choices.

Risk Aversion, the Hand Rule, and Comparison between Strict Liability and the Negligence Rule

2016 ◽  
Vol 12 (2) ◽  
Author(s):  
Kangoh Lee
Keyword(s):  
Risk Aversion ◽  
Social Welfare ◽  
Strict Liability ◽  
Risk Averse ◽  
Liability Rules ◽  
Risk Neutral ◽  
Negligence Rule

AbstractOne of the most important propositions in the economics of liability rules states that strict liability and the negligence rule are equivalent and first-best efficient if the standard of due care is set according to the Hand rule. This proposition hinges on the assumption that individuals are risk neutral. This paper considers this proposition with risk-averse individuals, and demonstrates that the proposition does not extend. In particular, the two liability rules are not equivalent, and the analysis compares the two liability rules in terms of utilitarian social welfare.

scholarly journals Risk-Aversion for Negative Health Outcomes May Promote Individual Compliance to Containment Measures in Covid-19 Pandemic

2021 ◽  
Vol 12 ◽  
Author(s):  
Chiara Cerami ◽  
Caterina Galandra ◽  
Gaia Chiara Santi ◽  
Alessandra Dodich ◽  
Stefano Francesco Cappa ◽  
...  
Keyword(s):  
Risk Aversion ◽  
Health Outcomes ◽  
Stressful Life Events ◽  
Risk Attitude ◽  
Italian Population ◽  
Risk Averse ◽  
Protection Strategies ◽  
Containment Measures ◽  
The Individual ◽  
Negative Health Outcomes

First-person experience of stressful life events can change individuals' risk attitudes, driving to increased or decreased risk perception. This shift to more risk-averse or risk-loving behaviors may find a correlate in the individual psycho-socio-emotional profile. To this purpose, we aimed to estimate the relationship between differences in risk-taking attitudes toward possible negative health outcomes and psycho-socio-emotional dimensions modulating the experience of life-threatening situations, in the context of the Covid-19 pandemic. In March 2020, we launched the PsyCovid Study (https://wprn.org/item/428452) to assess psycho-socio-emotional changes due to Covid-19 pandemic in the Italian population. Additionally, we distributed to 130 participants the Covid-19 Risk Task, including monetary and health-related stimuli, estimating a measure of risk-aversion toward health and classifying participants on the basis of their risk-attitude profiles. The set of psycho-socio-emotional variables was reduced to three PCA components: Proactivity, Isolation, Inactivity. The individual degree of risk-aversion toward negative health outcomes was directly related to Proactivity, encasing empathic, social support and positive coping strategies, which may prompt individuals to put in place self-protection strategies toward possible negative health consequences. These findings indicate that a risk-averse profile toward possible negative health outcomes may be associated to higher levels of individual prosocial and proactive dispositions, possibly making individuals' more compliant with the social and hygienic guidelines and, thus, reducing their exposure to the SARS-CoV-2 infection.

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.

scholarly journals Do Social Networks have Effects on the Risk Attitude of Commercial Poultry Farmers? Evidence from Southwest Nigeria

2017 ◽  
Vol 38 (333) ◽  
pp. 2-13
Author(s):  
Oluwakemi Adeola Obayelu ◽  
Olukemi Olumuyiwa Olowe ◽  
Temitope Grace Faleye
Keyword(s):  
Social Capital ◽  
Social Networks ◽  
Risk Attitude ◽  
Small Scale ◽  
Poultry Production ◽  
Risk Averse ◽  
Reverse Causality ◽  
Risk Neutral ◽  
Commercial Poultry ◽  
Poultry Farmers

Abstract Poultry production decision setting is full of risk and imperfect information. Attitude towards risk is a measure of farmers’ willingness to take risks which is an important determinant in their production decisions. Strong social capital emanating from social networks can lead to efficient risk management strategies, thereby minimizing risks faced by the farmers. Therefore, the effects of social capital on the risk attitude of small-scale commercial poultry farmers in Oyo state were assessed. Data were collected from two hundred small-scale farmers and analysed using descriptive and inferential statistics, factorial analysis, multinomial logit and a two-stage least square. Results showed that 52.5%, 37.5% and 10% of the poultry farmers were risk averse, risk neutral and risk preferring, respectively. About 31.4% and 68.6% of the female and male farmers respectively were risk averse. Close to a fifth, a quarter and two-thirds of the risk averse, risk neutral and risk takers respectively contributed 21-30% of the decisions in the associations. Fourteen percent of the farmers belonged to homogeneous groups. The choice of being risk averse was affected by marital status, educational level, family size, percentage spent on poultry income and aggregate social capital. There was no reverse causality between risk attitude and social capital.

A Risk Theory of Exploitation

2018 ◽  
pp. 205-226
Author(s):  
Horacio Spector
Keyword(s):  
Risk Aversion ◽  
Legal System ◽  
Risk Theory ◽  
Risk Averse ◽  
Labour Law ◽  
High Stakes ◽  
Labour Exploitation ◽  
Advanced Economies ◽  
Risk Neutral

This chapter offer a risk theory of labour exploitation that is based on contemporary economic and financial theory. In advanced economies capitalists have very sophisticated ways of spreading their risk through portfolios of investments in stocks, bonds, and other instruments. This diversification of capital allows them to reduce or control natural aversion to risk to large losses. Now, because workers only own their workforce, they must contemplate unemployment as a threatening alternative to any employment offer they may consider. Therefore, they must make high-stakes decisions under conditions of risk aversion. Since they make risk-averse decisions, they are led to accept wages and conditions that they would reject if they could choose in a risk-neutral way. The chapter suggests that labour law is a set of institutions that tends to rectify the situation of risk aversion to which labourers are led by a productive and legal system that, simultaneously, allows capitalists to diversify their risks.

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