This paper presents a principal-agent model in which the agent has imprecise beliefs. We model this situation formally by assuming the agent’s preferences are incomplete as in Bewley (1986) [2]. In this setting, incentives must be robust to Knightian uncertainty. We study the implications of robustness for the form of the resulting optimal contracts. We give conditions under which there is a un...

We consider the impact of anticipatory feelings on behavior. We focus on a very simple type of anticipatory feelings: we assume that anticipatory feelings are based on future expected utility. Although this modeling may not reflect the complexity of anticipatory emotions, it has an interesting consequence: We show that when there are diminishing returns in anticipatory feelings and additive sep...

I show that if an agent is risk neutral over a set of alternatives contained in a Euclidean space, then her utility function decreases linearly in the city block distance to her ideal point. Given a set of alternatives which is not contained in a Euclidean space, I find simple necessary and sufficient conditions on preferences such that, for any p ≥ 1, there exists a mapping of the set of alter...

In this paper we assess the importance of sample type in the estimation of risk preferences. We elicit and compare risk preferences from student subjects and subjects drawn from the general population, using the multiple price list method devised by Holt and Laury in their paper Risk Aversion and Incentive Effects (2002). We find evidence suggesting that under rank dependent utility, students e...

In riskless intertemporal choice, experimental studies suggest that a decision maker prefers smoothing a utility distribution implied by a sequence of outcomes. This paper extends, in an axiomatic framework, this notion of utility smoothing to a stochastic setting. We show that such an application can provide an axiomatic model of loss aversion in dynamic choice under uncertainty, which contras...

Gul’s theory of disappointment aversion (DA) has several attractive features, being intuitive, analytically tractable, and parsimonious. In spite of this, the DA model has received little attention in practical applications, which may be partly due to the absence of a procedure to elicit the model. We show how the tradeoff method, developed by Wakker and Deneffe can be used to elicit DA. Our el...

This paper evaluates attitudes of Iranians toward crossing red traffic lights and their sensitivity to fines. Economic theory of crime under expected utility predicts that because of the possibility of severe punishments, risk adverse individuals would not cross red lights. This is implied by the Becker proposition. However, among 262 individuals surveyed, more than half of the sample has previ...

In this paper we propose the inÞmum of the Arrow-Pratt index of absolute risk aversion as a measure of global risk aversion of a utility function. We then show that, for any given arbitrary pair of distributions, there exists a threshold level of global risk aversion such that all increasing concave utility functions with at least as much global risk aversion would rank the two distributions in...

This paper first extends some well-known univariate stochastic dominance results to multivariate stochastic dominances (MSD) for both risk averters and risk seekers, respectively, to n order for any n ≥ 1 when the attributes are assumed to be independent and the utility is assumed to be additively and separable. Under these assumptions, we develop some properties for MSD for both risk averters ...

the main logic behind the demand for life insurance is to hedge against the labor income uncertainty due to premature death of a wage earner. in other words, life insurance is the device by which this labor income uncertainty is handled. for insurers, the uncertainty arises from the lack of knowledge about the age of death of the wage earner. this paper attempts to derive life insurance demand ...