scholarly journals FALSE CONSCIOUSNESS IN FINANCIAL MARKETS: OR IS IT IN IVORY TOWERS?

2013 ◽  
Vol 4 (1) ◽  
pp. 19-30
Author(s):  
Adi Schnytzer ◽  
Sara Westreich
Keyword(s):  
Risk Aversion ◽  
Financial Markets ◽  
Risk Index ◽  
Recent Model ◽  
Economic Index ◽  
Expected Returns ◽  
False Consciousness ◽  
Risk Averse ◽  
Different Levels ◽  
Negative Expectations

In general, models in finance assume that investors are risk averse. An example of such a recent model is the pioneering work of Aumann and Serrano, which presents an economic index of riskiness of gambles which is independent of wealth and holds (as might be understood from the adjective “economic”) for exclusively risk averse investors. In their paper, they discuss gambles with positive expected returns which will be accepted or rejected by agents which different levels of risk aversion. The question never asked by the authors (and in most of the finance literature) is: Who is offering these attractive gambles? To arrive at an answer, we extend the Aumann-Serrano risk index in such a way that it accommodates gambles with either positive or negative expectations and is thus suitable for both the risk averse and risk lovers.  Once we allow for the existence of risk lovers, it may be shown that in financial markets, many gambles with negative expectations are taken either knowingly or unknowingly so that there are always people that act as if they are risk lovers. The paper concludes with a brief discussion of the implications of our result, in particular that gambling is by no means restricted to the casino or the track.

scholarly journals Risk and Site Factors Affecting Potential Nitrogen Delivery in the Virginia Coastal Plain

2001 ◽  
Vol 33 (1) ◽  
pp. 173-188 ◽  
Author(s):  
Wei Peng ◽  
Darrell J. Bosch
Keyword(s):  
Surface Water ◽  
Risk Aversion ◽  
Coastal Plain ◽  
Stochastic Dominance ◽  
Risk Attitudes ◽  
Risk Averse ◽  
Site Factors ◽  
Factors Affecting ◽  
Fertilizer Recommendations ◽  
Different Levels

AbstractThe effects of cropland slope, distance to surface water, farmers' risk attitudes, and farmers' nitrogen (N) fertilizer applications on potential N delivery to streams and costs of reducing N delivery were evaluated for a representative Virginia peanut-cotton farm. Target MOTAD and generalized stochastic dominance were used to select preferred plans for different levels of risk aversion. Costs of reducing N delivery were lower on farms where fields were located close to surface water, where N was overapplied relative to extension fertilizer recommendations, and where the operator was risk averse. Cropland slope had less effect on cost of reducing N delivery relative to other factors.

RISK-FREE RATES AND ANIMAL SPIRITS IN FINANCIAL MARKETS

2016 ◽  
Vol 11 (03) ◽  
pp. 1650011 ◽  
Author(s):  
JUKKA ILOMÄKI
Keyword(s):  
Financial Markets ◽  
Expected Returns ◽  
Risk Averse ◽  
Animal Spirits ◽  
Local Risk ◽  
Global Stock Markets ◽  
Animal Spirit ◽  
Risk Free Rate ◽  
Global Stock ◽  
Free Rate

We show analytically that animal spirit excess profits for uninformed investors fall (increase) when the risk-free rate rises (falls). In the theoretical analysis, we examine the expected returns of risk-averse, short-lived investors. In addition, we find empirically that the local risk-free rates explain 14% of the changes in the animal spirit excess profits in the global stock markets for the last 29 years when the animal spirits is characterized as a product of the trend-chasing rule.

scholarly journals Short‐term investments and indices of risk

2020 ◽  
Vol 15 (3) ◽  
pp. 891-921
Author(s):  
Yuval Heller ◽  
Amnon Schreiber
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Risk Index ◽  
Decision Makers ◽  
Decision Problems ◽  
Risk Averse ◽  
Short Term ◽  
Risky Assets ◽  
Absolute Risk Aversion ◽  
Constant Absolute Risk Aversion

We study various decision problems regarding short‐term investments in risky assets whose returns evolve continuously in time. We show that in each problem, all risk‐averse decision makers have the same (problem‐dependent) ranking over short‐term risky assets. Moreover, in each problem, the ranking is represented by the same risk index as in the case of constant absolute risk aversion utility agents and normally distributed risky assets.

Pricing Two Heterogeneous Trees

2011 ◽  
Vol 46 (5) ◽  
pp. 1437-1462 ◽  
Author(s):  
Nicole Branger ◽  
Christian Schlag ◽  
Lue Wu
Keyword(s):  
Growth Rate ◽  
Risk Aversion ◽  
Information Structure ◽  
Exchange Economy ◽  
Equilibrium Price ◽  
Expected Returns ◽  
Risk Averse ◽  
Relative Risk Aversion ◽  
Rate Process ◽  
Current Value

AbstractWe consider a Lucas-type exchange economy with two heterogeneous stocks (trees) and a representative investor with constant relative risk aversion. The dividend process for one stock follows a geometric Brownian motion with constant and known parameters. The expected dividend growth rate for the other tree is stochastic and in general unobservable, although there may be a signal from which the investor can learn about its current value. We find that the equilibrium quantities in our model significantly depend on the information structure and on the level of risk aversion. While an observable stochastic drift mainly makes the economy more risky, a latent expected growth rate process with learning significantly changes the equilibrium price-dividend ratios, price reactions to dividend and drift innovations, expected returns, volatilities, correlations, and differences between the stocks. These effects are the more pronounced the more risk averse the representative investor.

Eliciting Risk Preferences and Elasticity of Substitution

2020 ◽  
Vol 17 (4) ◽  
pp. 314-329
Author(s):  
Johan Burgaard ◽  
Mogens Steffensen
Keyword(s):  
Risk Aversion ◽  
Discount Rate ◽  
Predictive Power ◽  
Recursive Utility ◽  
Risk Averse ◽  
Indirect Utility ◽  
Consistent Estimation ◽  
On Certainty ◽  
Certainty Equivalents ◽  
Elasticity Of Intertemporal Substitution

Risk aversion and elasticity of intertemporal substitution (EIS) are separated via the celebrated recursive utility building on certainty equivalents of indirect utility. Based on an alternative separation method, we formulate a questionnaire for simultaneous and consistent estimation of risk aversion, subjective discount rate, and EIS. From a representative group of 1,153 respondents, we estimate parameters for these preferences and their variability within the population. Risk aversion and the subjective discount rate are found to be in the orders of 2 and 0, respectively, not diverging far away from results from other studies. Our estimate of EIS in the order of 10 is larger than often reported. Background variables like age and income have little predictive power for the three estimates. Only gender has a significant influence on risk aversion in the usually perceived direction that females are more risk-averse than males. Using individual estimates of preference parameters, we find covariance between preferences toward risk and EIS. We present the background reasoning on objectives, the questionnaire, a statistical analysis of the results, and economic interpretations of these, including relations to the literature.

scholarly journals Market-based instruments for risk-averse farmers: rubber agroforest conservation in Jambi Province, Indonesia

2016 ◽  
Vol 22 (2) ◽  
pp. 133-155 ◽  
Author(s):  
Utkur Djanibekov ◽  
Grace B. Villamor
Keyword(s):  
Income Inequality ◽  
Risk Aversion ◽  
Real Options ◽  
Risk Averse ◽  
Variance Model ◽  
Income Uncertainty ◽  
Real Options Approach ◽  
Pigovian Taxes ◽  
Rubber Agroforest ◽  
Mean Variance

AbstractThis paper investigates the effectiveness of different market-based instruments (MBIs), such as eco-certification premiums, carbon payments, Pigovian taxes and their combination, to address the conversion of agroforests to monoculture systems and subsequent effects on incomes of risk-averse farmers under income uncertainty in Indonesia. For these, the authors develop a farm-level dynamic mean-variance model combined with a real options approach. Findings show that the conservation of agroforest is responsive to the risk-aversion level of farmers: the greater the level of risk aversion, the greater is the conserved area of agroforest. However, for all risk-averse farmers, additional incentives in the form of MBIs are still needed to prevent conversion of agroforest over the years, and only the combination of MBIs can achieve this target. Implementing fixed MBIs also contributes to stabilizing farmers’ incomes and reducing income risks. Consequently, the combined MBIs increase incomes and reduce income inequality between hardly and extremely risk-averse farmers.

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.

Do Migrants Think Differently? Evidence from Eastern European and Post-Soviet States

2018 ◽  
Vol 53 (3) ◽  
pp. 831-868 ◽  
Author(s):  
Ruxanda Berlinschi ◽  
Ani Harutyunyan
Keyword(s):  
Risk Aversion ◽  
International Migration ◽  
The Other ◽  
Eastern European ◽  
Risk Averse ◽  
Economic Liberalism ◽  
Self Selection ◽  
Using Data ◽  
Politically Active ◽  
Beliefs And Attitudes

This research investigates migrant self-selection on values, beliefs, and attitudes using data from Eastern European and former Soviet countries. We find that individuals who intend to emigrate are more politically active, more critical of governance and institutions, more tolerant toward other cultures, less tolerant of cheating, more optimistic, and less risk averse. With the exception of risk aversion, all selection patterns are heterogeneous across regions of origin. On the other hand, no self-selection pattern is detected on education, willingness to pay for public goods, and economic liberalism. These findings provide new insights into the determinants of international migration and reveal some of its less known consequences, such as a possible reduction of domestic pressure for political improvements in post-Soviet states due to politically active citizens’ higher propensity to emigrate.

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