ABSTRACT: Motivated by the wide applications of distortion function and copulas in insurance and finance, this paper generalizes the notion of deterministic distortion function to a stochastic distortion function, i.e., a random process, and employs the defined stochastic distortion function to construct a so-called stochastic distorted copula. One method for constructing… more »
ABSTRACT: We study how inertia and personal experiences affect individual risk taking. Our research design relies on active portfolio decisions relating to inheritances to separate the effect of personal experiences from inertia, which otherwise would be observationally equivalent. Experience derives from investments in banks that defaulted following the financial crisis. We… more »
Published in 2017 in Management Science, Volume 63, Number 1.
ABSTRACT: This study investigates when forced sales of real estate turn into fire sales by using a natural experiment which allows us to separate supply and demand effects: Forced sales result from sudden death of house owners and are thus unrelated… more »
ABSTRACT: Gambling behavior is pervasive, apparently growing, and of methodological and substantive interest to economists. We examine the manner in which the population prevalence of disordered gambling has been estimated. General population surveys have deepened our knowledge of the population prevalence of gambling disorders, as well as the manner in which… more »
WP 2016_08 The Psychology of Human Risk Preferences and Vulnerability to Scare-Mongers: Experimental Economic Tools for Hypothesis Formulation and Testing
Published in 2016 in Journal of Cognition and Culture, Volume 16, Issue 5.
ABSTRACT: The Internet and social media have opened niches for political exploitation of human dispositions to hyper-alarmed states that amplify perceived threats relative to their objective probabilities of occurrence. Researchers should aim to observe the dynamic “ramping up”… more »
ABSTRACT: Index insurance was conceived to be a product that would simplify the claim settlement process and make it more objective, reducing transaction costs and moral hazard. However, index insurance also exposes the insured to basis risk, which arises because there can be a mismatch between the index measurement and the actual… more »
Forthcoming – Journal of Economic Methodology
ABSTRACT: A principal source of interest in behavioral economics has been its advertised contributions to policies aimed at ‘nudging’ people away from allegedly natural but self-defeating behavior toward patterns of response thought more likely to improve their welfare. This has occasioned controversies among economists and… more »
ABSTRACT: We take Cumulative Prospect Theory (CPT) seriously by rigorously estimating structural models using the full set of CPT parameters. Much of the literature only estimates a subset of CPT parameters, or more simply assume CPT parameter values from prior studies. Our data are from substantial laboratory experiments with undergraduate students… more »
ABSTRACT: Evidence of risk aversion in laboratory settings over small stakes leads to a priori implausible levels of risk aversion over large stakes under certain assumptions. One core assumption in standard statements of this calibration puzzle is that individuals define utility over terminal wealth, and that terminal wealth is defined as the… more »
Published in 2016 in European Actuarial Journal, Volume 6, Issue 2.
ABSTRACT: This is a summary of the main topics and findings from the Swiss Risk and Insurance Forum 2015. That event gathered experts from academia, insurance industry, regulatory bodies, and consulting companies to discuss the past and current developments and… more »