Pascal’s and Tabarrok’s Wagers

In a recent paper A. Tabarrok [Believe in Pascal’s Wager? Have I Got a Deal for You!, Theory and Decision 48, 123--128, 2000] argued that a believer who accepts Pascal’s Wager should in addition accept payment of any given fee in return for a given increase in the probability of reaching God. However the conclusion is obtained from manipulations of infinities which are not valid in an expected utility model. In this note, an alternative model is formulated in which Tabarrok’s conclusion can be obtained.     

Expected utility, μ-σ preferences,and linear distribution classes: A further result

This article is an extension of Meyer and Sinn's results on the representation of arbitrary von Neumann-Morgenstern functions in - space when the probability distributions to be compared belong to a linear distribution class. It shows that, when absolute risk aversion decreases, stays constant, or increases not too fast, an increase in , given , increases the indifference curve slope: increased riskiness increases the required marginal compensation for risk when risk is measured by the standard deviation of wealth or income.I gratefully acknowledge useful comments by Wolfgang Buchholz, Kai Konrad, Jack Meyer, Hans Schneeweiß, Dominique Thon, and Bengt Arne Wickström.     

Modernizing social security: Changing responsibilities and individual choice

Social security needs to be reformed to make it sustainable. We argue that it is necessary to consider not only system characteristics (such as the level and duration of benefits, insured population), but also the division of responsibilities. Social security is not solely a state matter; firms, trade unions, industrial sectors and the individual play a role as well. As social risks are to some extent endogenous, insurance ought to be taken care of at the level at which the risk can be most directly influenced in order to improve efficiency. This may partly take place within the public system, for example through risk rating. Alternatives would include shifting from collective to more individual arrangements, prominent examples being multipillar systems and savings accounts. Multipillar systems mainly imply a new division of responsibilities, taking the endogeneity of social risks and the implications of modern life cycles into account. At the same time they offer more individual choice. Savings accounts reduce moral hazard without affecting individual choice. Either way, in reforming social security a balance needs to be found between competing goals or principles: between equity and efficiency, between solidarity and freedom of choice, between the risks of moral hazard and adverse selection. This choice is difficult because social security is not only about "security". It is an important part of the way we organize our society and embodies many of society's values.     

A paradox in decision theory and some experimental results: The relative nature of decisions

A simple two-choice single outcome valued decision under risk is presented which should show up the limitations in the classical approach of von Neumann, its extensions and its alternatives. An empirical testing of this hypothesis strongly supports this criticism. A rationale for explaining the apparent irrational decision is put forward and the case is made for understanding the relative nature of decision choices especially when multi-criteria are involved.     

Mortality Risk Perceptions: A Bayesian Reassessment

"This study uses data on perceived and actual mortality risks to test several alternative Bayesian models of the factors influencing risk beliefs. The analysis...indicates that while the hazard rate for the individual age group is an influential factor, the overall population death rate and the discounted expected number of life years lost due to the cause of death are also influential in affecting risk perceptions.... The predictive power of a linear perception model increases with the level of the risk and is least accurate for very small risks."     

Risk and risk aversion for state-dependent utility

This paper analyses risk and risk aversion in the state-dependent utility model, which is useful for modelling health or life insurance purchase. We use Karni's (1983) definition of risk aversion, and extend the class of risks to which it can be applied.Research supported by the ESRC postdoctoral fellowship scheme. I would like to thank Jerry Nordquist for arousing my interest in this subject. For helpful comments on an earlier draft I am grateful to an anonymous referee and the editor of this journal.     

A μ-σ-Risk Aversion Paradox and Wealth Dependent Utility

We report a surprising property of --preferences: the assumption of nonincreasing relative risk aversion implies the optimal portfolio being riskless. We discuss a solution of that paradox using wealth dependent utility functions in detail. Using the revealed preference theory we show that (general, i.e. not necessary -) wealth dependent utility functions can be characterized by Wald's axiom.     

Notional defined contributions (NDC): Solvency and risk in Spain

The aim of this article is twofold: to demonstrate the actuarial imbalance in the Spanish pension system in its current form; and to measure the degree of aggregate economic risk to which pensioners are exposed when applying formulas for the calculation of retirement pensions based on notional accounts. The model used generates scenarios for various periods encompassing some 10,000 different permutations of the macroeconomic indices needed to calculate such parameters as initial pension, earnings replacement rate, or internal rate of return and value at risk. The findings are analysed both objectively and subjectively. The main conclusions are that if the projections for the macroeconomic indices used bear only a minimal resemblance to reality, the pension system will accumulate further financial imbalance in the future that will force it either to reduce initial pensions considerably or to make some radical adjustments to the parameters. In terms of risk, for beneficiaries with high risk aversion the preferred formulas would be those based on future variations in wages with a constant pension amount in real terms; on the other hand, those less averse to risk would prefer formulas that generate a smaller initial pension but one which grows in real terms with subsequent changes in wage levels.     

The Inappropriate Use of Risk-Benefit Analysis in the Risk Assessment of Experimental Trauma-Focused Research

A large body of research has explored the impact of questioning participants about traumatic experiences. To determine the level of risk, these studies have relied, to various degrees, upon a risk-benefit calculus, whereby risks are weighed against the benefits that an individual can receive from participating. In the case of trauma-focused studies this approach is erroneous. The procedures involved in trauma-focused studies do not meet the criteria to be considered therapeutic, and the benefits associated with these procedures do not carry the moral weight to offset risk. Applying the risk-benefit calculus to non-therapeutic procedures inevitably leads to inaccurate risk assessments and ethically problematic claims, examples of which can be found throughout traumatic stress literature. This article outlines how the standard approach to risk assessment in trauma-focused studies is fallacious, and presents an established alternative model that researchers can use to accurately assess the risks of asking participants about their traumatic experiences.     

On the Inefficiency of Bang-Bang and Stop-Loss Portfolio Strategies

We show in this article that bang-bang portfolio strategies where the investor is alternatively 100% in equity and 100% in cash are dynamically inefficient. Our proof of this result is based on a simple second-order stochastic dominance (SSD) argument. It implies that this is true for any decision criterion that satisfies SSD, not necessarily expected utility. We also examine the stop-loss strategy in which the investor is 100 percent in equity as long as the value of the portfolio exceeds a lower limit where the investor switches to 100 percent in cash. Again, we show that this strategy is inefficient under second-order risk aversion. However, a slight modification of it–in which all wealth exceeding a minimum reserve is invested in equity–is shown to be an efficient dynamic portfolio strategy. This strategy is optimal for investors with a nondifferentiable utility function.     

Loss aversion leading to advantageous selection

Some insurance markets are characterized by “advantageous selection”, that is, ex-post risk and coverage are negatively correlated. We show that expectation-based loss aversion as in K?szegi and Rabin (Quarterly Journal of Economics, 121(4), 1133–1165, 2006; The American Economic Review, 97(4), 1047–1073, 2007) provides a natural explanation for this phenomenon in environments in which risk aversion models do not, e.g., when agents face modest-scale risks and/or in absence of moral hazard. More exposure to risk has two competing effects on an agent’s willingness to pay for insurance: a positive effect, as in standard expected utility models; and a negative one, due to a reference effect. We determine conditions under which an insurance provider optimally sets a high price at which only low risk agents buy.     

Gender equity and women's contraception use

Gender equity describes the distribution between men and women of social and material resources and decision‐making powers. Women's experiences of gender equity are likely to influence their contraceptive use. Multilevel analysis of two databases: the National Survey of Sexual Attitudes and Lifestyles from the United Kingdom and the United Nations' Fertility and Family Surveys, was undertaken to explore the association between gender equity measured at two spatial scales (small areas and countries) and women's contraception use. Results suggest that the spatial scale at which gender equity is considered is important. Gender equity was associated with contraception use at a local level, but not at the country level. Further, gender equity (at a local level) benefited women with less education in terms of increasing their likelihood of contraception use compared with more highly educated women. Results suggest gender equity is a potential pathway to reducing socio‐economic inequalities in health in developed settings.     

人民币汇率波动与江苏上市公司权益风险的相关性研究——兼论美国金融危机的影响

以2005年7月21日汇改以来的人民币兑美元汇率和江苏省上市公司日收盘价为研究对象,利用DCC—MVGARCH模型实证分析人民币汇率波动与上市公司权益风险之间的动态相关性,结果表明：人民币汇率波动与上市公司权益风险间总体而言呈动态负相关关系,美国金融危机的冲击对这种相关性产生了显著的改变,相比而言,食品、纺织和运输类上市公司的这种相关性受金融危机的影响比较大。     

Gender,risk and stereotypes

This paper reports results from an economic experiment where respondents are asked to make choices between risky outcomes for themselves and others. We investigate whether subjects’ own risk preferences and gender stereotypes are reflected in the predictions they make for the risk preferences of others and the way this occurs. When predicting other people’s risk preferences, the respondents tend to use a combination of their own risk preferences and stereotypes. Moreover, when making risky choices for others, the respondents generally use a combination of their own risk preferences and their average predicted risk preference of the targeted group.

Working with children checks —time to step back?

Screening the criminal history of people seeking to work or volunteer in child‐related organisations commenced in Australia in 2000, and since then ‘working with children check’ schemes have expanded, largely without question. Every jurisdiction now has a legislated or administrative scheme, routinely checking the criminal histories of thousands of people to determine if they pose a risk to children. But in any regulatory regime, questions of effectiveness and efficiency arise. The main features of working with children check schemes operating in Australia are examined in this paper. Problems related to effectiveness, equity, and costs are identified. A better balance is needed between routine criminal history checks and other mechanisms for identifying and monitoring the risks posed to children by people who work with them.     

Communication of ambiguous risk information

This paper reports on the responses of 646 individuals to environmental risk information involving different forms of risk ambiguity. Recipients of more than one set of risk information do not simply average the risk levels provided. Rather, a variety of aspects of the nature of the risks that are communicated influence their probabilistic beliefs. Individuals' perceptions of the risk levels to which they are exposed are likely to be greater: (i) for more ambiguous risks, (ii) for risks for which the unfavorable risk evidence is presented last even when there is no temporal order, (iii) for risks for which the most unfavorable risk studies have been performed most recently, and (iv) for risks where there is asymmetry in the risk ambiguity that imposes substantial potential downside risks. Although these effects are modest for the median individual, the potential for extreme responses that reflect only the most adverse or the most favorable piece of information provided is quite prevalent. These findings are of interest more generally in that they indicate how individuals form their risk perceptions in the presence of risk ambiguity.The authors would like to thank the U.S. Environmental Protection Agency for support of this work under Cooperative Agreements Number CR-815445-01-2 and Number CR-814388-02-1. Dr. Alan Carlin and Dr. Ann Fisher provided valuable guidance in the design of the project, and Dr. Doyle Graham and Dr. Douglas Anthony offered generous assistance in communicating the medical consequences of nerve disease to subjects. Jon LaScala assisted superbly in the administration and analysis of the survey, and Patricia Born provided additional computer programming assistance.     

Valuing risks of death from terrorism and natural disasters

This paper uses a random utility model to examine stated preferences for the valuation of public risks of fatalities from terrorist attacks and natural disasters. Traffic-related deaths serve as the common reference point in two series of pairwise risk-risk tradeoff choices. Even after taking into account differences in respondent risk beliefs, the nationally representative sample values the prevention of terrorism deaths almost twice as highly as preventing natural disaster deaths and at about the same level as preventing deaths from traffic accidents, which pose greater personal risk. Education, seatbelt usage, political preferences, and terrorism risk beliefs affect valuations in the expected manner.

Few and Far Between? An Environmental Equity Analysis of the Geographic Distribution of Hazardous Waste Generation

Objective. This article examines whether the generation of hazardous waste is concentrated in communities that are disproportionately minority or low income. Whereas much environmental equity research has focused on commercial facilities managing hazardous waste, facilities that generate and manage their own wastes—which account for over 98 percent of hazardous waste volume—have been ignored. Methods. The demographic characteristics were determined of people in geographic concentric rings around hazardous waste generators accounting for most of the country's 1997 hazardous waste volume. Results. My analyses indicate no tendency for disproportionately minority communities to be near these facilities. In fact, relatively few people are near where most hazardous waste is generated. Although a few of these facilities have large numbers of minority people around them, most are in areas with higher than average white populations. There was, however, a tendency for low-income communities to be near these facilities. Conclusions. To the extent that there are potential risks from the presence of hazardous waste at facilities, most of this risk is in relatively unpopulated areas. The presence of hazardous waste is not concentrated in areas that are disproportionately minority or low income.     

A Paretian liberal dilemma without collective rationality

This note proposes a principle of liberalism which is a simple and plausible variant of Sen's principle of minimal liberalism. The former principle is shown to be incompatible with the weak Pareto principle; and this impossibility result is not dependent on the preference-aggregating rule being restricted by any collective rationality condition.     

Risk preferences of Australian academics: where retirement funds are invested tells the story

Risk preferences of Australian academics are elicited by analyzing the aggregate distribution of their retirement funds (superannuation) across available investment options. Not more than 10 % of retirement funds are invested as if their owners maximize expected utility under the assumption of constant relative risk aversion with an empirically plausible level of risk aversion. An implausibly high level of risk aversion is required to rationalize any investment into bonds when stocks are available. Not more than 36.54 % of all investments can be rationalized by a model of loss averse preferences. Moreover, the levels of loss aversion typically reported in the experimental studies imply overinvestment in bonds, which is not observed in the data. Up to 67.18 % of all investments can be rationalized by rank-dependent utility or Yaari’s (Econometrica 55:95–115 1987) dual model with empirically plausible parameters. A median Australian academic behaves as if maximizing rank-dependent utility with parameter \(\gamma \in [0.76, 0.79]\) in a Tversky and Kahneman (J Risk Uncertain 5:297–323 1992) probability weighting function.