The paper considers the evolution of portfolio rules in incomplete markets with stationary returns and endogenous prices. The ultimate success of a portfolio rule is measured by the wealth share the rule is eventually able to conquer in competition with other portfolio rules. We give necessary and sufficient conditions for portfolio rules to be evolutionary stable in an incomplete market. In th...

Blackwell (1951, 1953) proposes an informativeness ranking of experiments: Experiment I is more Blackwell-informative than Experiment II if and only if the value of experiment I is higher than that of experiment II for all expected-utility maximizers. Under commitment and reduction, our main theorem shows that Blackwell equivalence holds for all convex and strongly monotone preferences, i.e., t...

Updating, Self-Confidence and Discrimination In a laboratory experiment, we show that subjects incorporate irrelevant group information into their evaluations of individuals. Individuals from on average worse performing groups receive lower evaluations, even if they are known to perform equally well as individuals from better performing groups. Our experiment leaves room neither for statistical...

Inventory positions of two risk averse market makers are introduced into a Kyle (1985) type batch trading model and the effects are analyzed. An equilibrium is defined with participation constraint and incentive compatibility and it is characterized as γ-coalitional equilibrium. At the equilibrium the two market makers share the risk of clearing orders so that the aggregate pricing schedule bec...

Standard structures of information, in particular partition structures, are inadequate for the modeling of strategic thinking. They fail to capture the inner structure of hypotheses players make about situations they know will not occur. An extension of the partition structure is proposed in which such hypotheses can be modeled in detail. Hypothetical knowledge operators are defined for extende...

An important technical question arising in economic and financial applications of decision models with non-additive beliefs is how to define stochastic independence. In fact the straightforward generalization of independence does not in general yield a unique product. I discuss the problem of independence, with specific focus on the validity of the Fubini theorem. The latter holds in general on...

Given their reference point, most people tend to be risk averse over gains and risk seeking over losses. Therefore, they exhibit a dual risk attitude which is reference dependent. This paper considers an adaptive process for choice under risk such that, in spite of a permanent short-run dual risk attitude, the agent eventually learns to make risk neutral choices. The adaptive process is based o...

This paper proposes differentiability properties for positively homogeneous risk measures which ensure that the gradient can be applied for reasonable risk capital allocation on non-trivial portfolios. It is shown that these properties are fulfilled for a wide class of coherent risk measures based on the mean and the one-sided moments of a risky payoff. In contrast to quantile-based risk measur...

Similar to welfare economics where with(out) interpersonal comparisons one defines unique (set-valued) welfare (Pareto) optima, we present a framework for one-person decision making where with(out) a prior probability distribution individual optimality prescribes usually a unique (set of) choice(s). Satisfiable aspirations in the sense that there exists some choice guaranteeing them define a mu...

The role of product market reforms in achieving the objective of higher employment and growth has recently received much attention amongst academics. The aim of this paper is to analyse some of the channels through which cross-market effects come about and to assess their policy relevance. The analytic strategy of this paper relies upon the stochastic real options modelling approach. In a nutsh...