We provide an axiomatic foundation for the measurement of correlation diversification in a one-period portfolio model. We propose a set of eight desirable axioms for this class of diversification measures. We name the measures satisfying these axioms coherent correlation diversification...

Expected utility of net present value is the practitioner's approach to incorporate risk aversion into the evaluation of a project's cash flows. The discount rate and the convergence with the risk-neutral beta-adjusted approach from finance have always been a question. To fill this gap, we adopt...

We conduct an experiment in which we elicit subjects’ beliefs over opponents’ behavior multiple times for a given game without feedback. We find that the large majority of individual subjects have stochastic belief reports, which we argue cannot be explained by learning or measurement error....

Building on the Herstein-Milnor mixture set axiomatization of expected utility theory, we employ multiple mixture operators each modeling a source of uncertainty to arrive at a definition of rich mixture sets. This enables a weakening of the reduction of compound lottery axiom leading to an...

Loomes & Sudgen (1982) and Fishburn (1987) asked a long-puzzling question: can the concept of regret be compatible with transitivity? Under risk, Bikhchandani & Segal (BS 2011) proved that any transitive regretbased behavior is expected utility. From von Neumann–Morgenstern framework to...

This paper develops an approximate closed-form optimal portfolio allocation formula for a spot asset whose variance follows a GARCH(1,1) process. We consider an investor with constant relative risk aversion (CRRA) utility who wants to maximize the expected utility from terminal wealth under a...