In this paper we model the behavior of a risk averse agent who seeks to maximize expected utility and who has an indivisible asset and a timing option over when to sell this asset. Our main contribution is to show that, contrary to intuition, optimal behavior for such a risk averse agent can include risk increasing gambles. For example, a manager with a choice over when to disinvest from a proj...

In experimental studies of behavior in 2 × 2 games with unique mixed strategy equilibria, observed choice frequencies are systematically different from mixed-strategy Nash predictions. This paper examines experimental results for a variety of such games, and shows that a structural econometric model which incorporates risk aversion into a quantal response equilibrium explains the data very well...

We study asset pricing and trading behavior in an exchange economy populated by two agents with different risk aversion. We show that the credit market plays a central role in the risk sharing between the two agents. It allows the less-risk-averse agent to borrow in order to take on levered positions in the stock and thus bear more risk. Optimal risk sharing results in the more-risk-averse agen...

There is a significant gender imbalance on financial trading floors. This motivated us to investigate gender differences in financial risk taking under pressure. We used a well-established approach from behavior economics to analyze a series of risky monetary choices by male and female participants with and without time pressure. We also used second to fourth digit ratio (2D:4D) and face width-...

We analyze a market populated by expected utility maximizers and smooth ambiguity-averse consumers. We study conditions under which ambiguity-averse consumers survive and affect prices in the limit. If ambiguity vanishes with time or if the economy exhibits no aggregate risk, ambiguity-averse consumers survive, but have no long-run impact on prices. In both scenarios, ambiguity-averse consumers...

BACKGROUND Adherence to treatment and the metabolic control of diabetes are challenging in many patients with diabetes. The theory of neuroeconomics can provide important clues for understanding unreasonable human behavior concerning decisions between outcomes occurring at different time points. OBJECTIVE We investigated patients with type 1 and type 2 diabetes to determine whether patients w...

It long has been appreciated that humans behave irrationally in economic decisions under risk: they fail to objectively consider uncertainty, costs, and rewards and instead exhibit risk-seeking or risk-averse behavior. We hypothesize that poor estimates of motor variability (influenced by motor task) and distorted probability weighting (influenced by relevant emotional processes) contribute to ...