We investigate the relationship between subjective probabilities of future stock market returns and decisions about stockholding. Specifically, we examine whether acting upon subjective probabilities is confined to individuals with high cognitive skills. We explore this question using data from...

The objective of this paper is to combine a real options framework with portfolio optimization techniques and to apply this new framework to investments in the electricity sector. In particular, a real options model is used to assess the adoption decision of particular technologies under...

In this paper we experimentally test skewness preferences at the individual level. Several prospects that can be ordered with respect to the third-degree stochastic dominance (3SD) criterion are ranked by the participants of the experiment. We find that the skewness of a distribution has a...

Rare and randomly occurring events are important features of the economic world. In continuous time they can easily be modeled by Poisson processes. Analyzing optimal behavior in such a setup requires the appropriate version of the change of variables formula and the Hamilton-Jacobi-Bellman...

Rare and randomly occurring events are important features of the economic world. In continuous time they can easily be modeled by Poisson processes. Analyzing optimal behavior in such a setup requires the appropriate version of the change of variables formula and the Hamilton-Jacobi-Bellman...

We derive a class of utility functions that are equivalent with respect to a well-defined functional form. We study the case of constant relative risk aversion (of some order) to investigate on different equivalence relations in order to determine the, possibly infinite, number of equivalence...

We propose a new decision criterion under risk in which people extract both utility from anticipatory feelings ex ante and disutility from disappointment ex post. The decision maker chooses his degree of optimism, given that more optimism raises both the utility of ex ante feelings and the risk...

One of Keynes’ core issues in his liquidity preference theory is how fundamental uncertainty affects the propensity to hold money as a liquid asset. The paper critically assesses various formal representations of fundamental uncertainty and provides an argument for a more bounded rational...

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this...

We extend gender research on risk behavior to betting markets. Our data set consists of all 5,136,660 bets in New Zealand from 2006 to 2009 and allows assigning each bet to individ-ual bettors. Women are much more prone to the favorite-longshot bias and suffer higher losses. Usually, betting on...