If the underlying asset price process is unknown, arbitrageurs may not have sufficient incentive and confidence to use the underlying asset to arbitrage options. The option market makers can hedge their portfolios of temporary option inventories without the underlying asset, but investors’ risk attitudes and heterogeneous expectations could become relevant to option pricing. This paper shows th...

We study partnership contracts under uncertainty but with clauses that admit downstream flexibility. The focus is on effects of flexibility on the synergy set, the core, of the contract. In a partnership context the value of flexibility is captured by the partners who own the right to exercise. On one side, there are cooperative options, which are exercised jointly and in the interest of maximi...

The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself. Yields vary across different investment opportunities and their interrelations are difficult to explain. For the same agent, a different discounting factor has ...

The effects of environmental and biopsychosocial factors on financial risk tolerance is analyzed. The research is premised on Irwin’s (1993) risk-taking behavioral model. Findings from an OLS regression, using a sample of faculty and staff from two universities (N = 406), indicate that education, marital status, net worth, financial knowledge, and household income, as environmental factors, are...

In this work we present two types of emotional message, negative (sadness) versus mixed (joy and sadness), with the aim of studying their differential effect on attitude change and the probability estimated by participants of repeating the behavior of occasional excessive drinking in the near future. The results show that for the group of participants with moderate experience in this behavior t...

In this paper, we establish an axiomatically founded generalized recursive smooth ambiguity model that allows for a separation among intertemporal substitution, risk aversion, and ambiguity aversion. We axiomatize this model using two approaches: the second-order act approach à la Klibanoff, Marinacci, and Mukerji (2005) and the two-stage randomization approach à la Seo (2009). We characterize ...

This paper investigates the impacts of interactivity and vividness on objective claims and subjective claims of product presentations, which in turn impact online consumer’s behavior. Employing an empirical study, we found that interactivity impacts objective claims and vividness impacts subjective claims. Going forward, we have found support for the impacts of objective claims and subjective c...

The recent crisis made it evident that replicating the performance of a benchmark is not a sufficient goal to meet the expectations of usually risk-averse investors. The manager should also consider that the investor are seeking for a downside protection when the benchmark performs poorly and thus they should integrate a form of downside risk control. We propose a multiperiod double tracking er...

We examine the robustness of the fourfold pattern of risk attitudes under two elicitation procedures. We find that individuals are, on average, risk-seeking over low-probability gains and high-probability losses and risk-averse over high-probability gains and low-probability losses when we elicit prices for the gambles. However, a choice-based elicitation procedure, where participants choose be...

In this paper we provide empirical evidence that attitudes towards risk are important when assessing the impact of conservation policies on production choices. In the case of an irrigation water quota, deriving water demand responses from a multi-input farmer decision model under risk has to account for unobserved risk attitudes. We first follow the approach of Antle (1987) based on higher-orde...