We analyze the relation between firms' exposure to exogenous business risk and their financing choices, based on a sample of firms for which we can measure such exposure. The results show that firms more exposed to exogenous risk use less debt financing. We also analyze the relation between the...

This paper derives conditions under which the well-known decomposition of unconditional expected utility into marginal probabilities and conditional expected utility generalizes to Cumulative Prospect Theory, as well as updating rules for probability weighting functions. The results are, for...

This paper extends our earlier work on reverse Bayesianism by relaxing the assumption that decision makers abide by expected utility theory, assuming instead weaker axioms that merely imply that they are probabilistically sophisticated. We show that our main results, namely, (modified)...

In the wake of growing awareness, decision makers anticipate that they might become aware of material possibilities and ideas that, in their current state of ignorance, are unimaginable. This anticipation manifests itself in their choice behavior. This paper models this awareness of unawareness...

This paper presents an intertemporal model of growing awareness. It provides a framework for analyzing problems with long time horizons in the presence of growing awareness and awareness of unawareness. The framework generalizes both the standard event-tree framework and the framework from Karni...

In this note we clarify and generalize the main result in Karni and Viero (2013) by allowing the discovery of new consequences to nulllify some states that were non-null before the discovery.

This paper derives a representation of preferences for a choice theory with vague environments; vague in the sense that the agent does not know the precise lotteries over outcomes conditional on states. Instead, he knows only a possible set of these lotteries for each state. Thus, this paper's...

This paper shows that a new trade-off arises in the optimal contract when contracting takes place with vague information (objective ambiguity), reflecting that real-world contracting often takes place under imprecise information. The choice-theoretic framework captures a decision-maker`s...

This paper invokes the axiomatic approach to explore the notion of growing awareness in the context of decision making under uncertainty. It introduces a new approach to modeling the expanding universe of a decision maker in the wake of becoming aware of new consequences, new acts, and new links...

The granting of stock options to employees who have negligible impact on company performance intuitively violates Holmstrom's (1979) sufficient statistic result. This paper revisits the sufficient statistic question of when to condition a contract on an outside signal in a principal-agent model...