Ross' measure of risk aversion and portfolio selection

This article shows that if Ross' definition of riskier is replaced by a more traditional definition, such as a mean-preserving spread or second-degree stochastic dominance, then the application of Ross's stronger measure of risk aversion to the portfolio problem may no longer produce the desired result. It is also shown that the stronger measure may not perform satisfactorily when applied to exponential utility functions.The authors are grateful to John Pratt for his helpful comments.     

The effect of information on health risk valuations

This article examines the effect of familiarity with chronic lung disease on people's willingness to pay to reduce their risk of contracting chronic bronchitis, and on their willingness to increase their risk of auto death to reduce chronic bronchitis risk. We find that persons who have a relative with chronic lung disease are willing to give up more income to reduce their risk of chronic bronchitis than persons with no first-hand knowledge of the disease; however, their willingness to increase their risk of auto death to reduce their risk of chronic bronchitis is no different, on average, than persons with no first-hand knowledge of lung disease. This suggests that responses to risk-risk tradeoffs may be more stable than responses to risk-income choices.This research was sponsored by Resources for the Future and by the U.S. Environmental Protection Agency, Office of Policy Planning and Evaluation, Alan Carlin and Joel Scheraga, project officers. We thank Robert Mitchell for his help in conducting focus groups, and Caroline Harnett and Sari Radin for research assistance. Stan Presser, Sue Dowden, and Tim Triplett of the University of Maryland's Survey Research Center administered the survey. We especially thank Stan Presser for his suggestion that we sample relatives of people with chronic lung disease. We also thank Kip Viscusi, Wes Magat, and Joel Huber for making available their computer programs and data, and Ajay Kalra for programming help. Paul Portney and John Mullahy provided useful comments on an earlier draff of the article, as did two referees.     

Risk communication and attitude change: Taiwan's national debate over nuclear power

This article reports the first analysis of the effects of a national risk-communication program that disseminated the facts about the risks associated with nuclear power plants. It relies upon a unique set of circumstances in Taiwan. The state-operated power corporation sponsored a national debate in an effort to promote greater public consensus on the need for a fourth nuclear power plant. This analysis uses statedrisk perceptions and attitudes toward the plant to evaluate the effect of the debate. The results are based on a panel of households interviewed before and after the debate. They suggest that the debate did not reduce respondents' perceived risks from nuclear power and had little perceptible effect on the attitude changes of our sample. The only systematic influences detected on the observed attitude changes imply that respondents reacted counter to the debate's objectives, and thus the debate seems likely to continue to erode support for the new plant.The authors are, respectively, Associate Research Fellow, Institute of Economics, Academic Sinica; and University Distinguished Professor of Economics, North Carolina State University, and Resources for the Future University Fellow. Thanks are due Jin Long Liu for his excellent research assistance in developing these results, to Kip Viscusi for constructive comments, and to Barbara Scott for her helpful editing of earlier drafts of this article. Partial support for Smith's research was provided by National Science Foundation grant SES-8911372.     

Endogenous risks and the risk premium

This note tries to correct a deficiency of the microeconomic literature on decision making under uncertainty. Indeed, when considering meaningful comparative statics results in situations where risks are at least partially controllable (endogenous), this literature has mostly relied upon the traditional Arrow-Pratt risk aversion functions and has paid very little attention to the definition of the risk premium. However when they defined the risk premium and the risk aversion functions, Arrow and Pratt considered only roulette gambles, i.e. risks totally exogenous to the individual. This note highlights the fact that several definitions of the risk premium may be proposed for endogenous risks. Two of them, already used in the literature, do not preserve the intuitively-appealing properties of the Arrow-Pratt risk premium. An alternative definition is then proposed. It is shown that this new definition of the risk premium applied to endogenous risks exhibits the properties generally admitted for roulette gambles.The three authors have benefitted from Ph. Caperaa's advice and from a referee's comments.     

A psychosocial approach to supporting injured dancers

Professional dancers experience injury as a crisis and threat to identity that often leads to numerous psychosocial concerns. This article describes a group model designed to help injured dancers recover. As a program of The Actors Fund, this 10-week Support Group for Injured Dancers reduces unwanted isolation caused by injury and provides dancers with strategies for stress reduction and healing. The purpose of this article is to aid practitioners in mitigating emotional distress among injured dancers by providing the history and rationale behind the group, an overview of the group’s structure and methods, and suggestions for further research and growth.     

Normative collective behavior in the Station building fire

Objective. This article offers a test of the normative explanation of collective behavior by examining the fire at the Station nightclub in Rhode Island that killed 100 and injured nearly 200 persons.Methods. Information on all persons at the club comes from content analysis of documents from the Rhode Island Police Department, the Rhode Island Office of the Attorney General, and The Providence Journal. We use negative binomial regression to test hypotheses about the effects of group-level predictors of the counts of dead and injured in 179 groups at the nightclub.Results. Results indicate that group-level factors such as distance of group members at the start of the fire, the number of intimate relations among them, the extent to which they had visited the nightclub prior to the incident, and the average length of the evacuation route they used predict counts of injured and dead. The research also looks at what behavioral differences exist between survivors and victims, ascertains the existence of role extension among employees of the nightclub, and provides support for the affirmation that dangerous contexts negate the protective influence of intimate relations in groups.Conclusion. We argue for the abandonment of current emphasis on irrationality and herd-like imitative behavior in studies of evacuation from structural fires in buildings and for the inclusion of group-level processes in social psychological explanations of these incidents.     

IASWG Standards for Social Work Practice with Groups: Development,Application, and Evolution

This article focuses on the International Association for Social Work with Groups' Standards for Social Work Practice with Groups. It begins with an overview of the Standards and their significance. It reports on three integrated studies conducted by the authors. First is a review of the literature that examines how human service organizations approach the construction of standards. Second is a 2009 study of how the Standards are known, used, and assessed by respondents to an online survey. The findings of this survey inspired the third study, conducted in 2010 utilizing a focus group approach to explore how the Standards could be more applicable in a global context. The article concludes with implications and recommendations for future evolution and dissemination of the Standards.     

The risk aversion measure without the independence axiom

The risk premium (conveniently normalized) is defined as the measure of risk aversion. This measure does not require any relevant assumption in the theory of choice under uncertainty except the existence of a certainty equivalent. In particular, the independence axiom is not required. The measure of risk aversion of an action is provided not only for the case with one commodity and two consequences but also for the case with many commodities and consequences. The measure of mean risk aversion of all actions with given consequences is introduced and the local measure of risk aversion is obtained by making all these consequences approach the consequence under consideration. This measure is demonstrated to be zero when the von Neumann-Morgenstern utility function exists. In this case a measure of risk aversion of the second order is introduced, which turns out to be equal to the Arrow-Pratt absolute index when there is only one commodity and similar to the generalized measures proposed by several authors when there are many commodities and two consequences.Helpful comments by I. Gilboa and suggestions by the referee are gratefully acknowledged.     

Distributive justice of bargaining and risk sensitivity

In this paper we will point out some possibilities and limitations of the discussion of distributive justice by bargaining in the classical bargaining models.We start by considering a kind of bargaining situation where two persons with different risk aversions have to distribute a given quantity of a certain good. Then we define a model in which two bargaining situations are compared. In both situations two persons divide a quantity of a certain good; in the second situation one of the persons, say person 2, is replaced by a more risk averse person. From a well-known theorem of Kihlstrom, Roth and Schmeidler it follows that in the Nash solution, the Kalai-Smorodinsky solution and the Maschler-Perles solution person 1 prefers the situation with the more risk averse opponent.In both classes of problems the judgement of distributive justice is impossible because of an informational poverty of the classical bargaining model. We propose to integrate changes in the economic situation of the persons into the model.Therefore, in a third step, we compare two distributive situations, where differences in the situations are implied by changes in the initial endowments of the persons. Under the assumption that each person has a decreasing local risk aversion, we show that every reallocation of the initial endowments is enlarged or at least preserved by risk sensitive bargaining solutions. This fact has some significance for the discussion of distributive justice in social decision making by bargaining.     

Common Ground: The Development of a Support Group for Survivors of Homicide Loss in a Rural Community

ABSTRACT

Losing a loved one from human-perpetrated violence can lead to a debilitating process of stigma-generated isolation and trauma. Layers of social services are needed to support surviving family members, all secondary victims of homicide. Although urban populations have enriched access to victims-of-crime services, rural-bound populations often do not. This article describes homicide-specific trauma and the development of a community support group for rural-bound persons suffering homicide loss. The support group process offers potential for real help in areas where few trauma-informed options exist. The authors chronicle their journey of group-work practice with underserved persons coping with homicide loss.     

The Politics of (Fractured) Solidarity: A Cross‐National Analysis of the Class Bases of the Welfare State

This article considers the politics of social solidarity from a cross‐national perspective. In the analysis, we rely on four waves of international social survey data for our sample of Western nations, representative of different welfare state traditions. The time span is a 20‐year period and the total country‐wave sample comprises over 40,000 records. While there is popular support for governmental actions to protect citizens in old‐age and sickness, views about the social rights of unemployed citizens are shifting. High‐profile activating labour‐market reforms are reapportioning the burden of risk in society. With the rise of right‐wing populism in Europe and the USA, this article examines how interests change as citizens lose their stake in the means of security – revealing an ever more fragile and fractured social solidarity.     

Age, Health and the Willingness to Pay for Mortality Risk Reductions: A Contingent Valuation Survey of Ontario Residents

We present the results of a contingent valuation survey eliciting willingness to pay (WTP) for mortality risk reductions. The survey was self-administered using a computer by 930 persons in Hamilton Ontario aged 40 to 75. Visual and audio aides were used to enhance risk comprehension. Mean WTP figures for a contemporaneous risk reduction imply a value of a statistical life of approximately C$l.2 to C$3.8 million (1999 C$). Mean WTP is constant with age up to 70 years, and is about 30 percent lower for persons aged 70 and older. WTP is unaffected by physical health status, but is affected by mental health.     

Immigrant households and hardships after welfare reform: a case study of the Miami-Dade Haitian community

Compared with other nations such as Canada and Australia, the US experiment with welfare reform has yielded steeper and more immediate caseload declines. These declines have been especially pronounced for immigrants who have been subject to a new set of service restrictions implemented under the 1996 Welfare Reform Act. This article examines service access for Haitian immigrants in Miami, Florida since the onset of these reforms. The data presented here are derived from a series of qualitative interviews with Haitian service professionals and a quantitative survey of Haitian immigrant households. The survey data indicate that many Haitians who are living in poverty and qualified to access services are not enrolled for government services. Confusion over eligibility guidelines explains some of the variation of these low enrolments for specific services (such as child health insurance and childcare) but not for services most commonly used by immigrant adults such as food stamps and Medicaid. The survey also demonstrates that qualified immigrants living in households with unqualified persons are less likely to access services than are other qualified immigrants and are more likely to experience hardships that impede their ability to find stable employment. The concluding discussion highlights the significance of using a household unit of measure in assessing immigrant enrolments and hardships.     

Estimating Risk Attitudes using Lotteries: A Large Sample Approach

Attitudes towards risk play a major role in many economic decisions. In empirical studies it is quite often assumed that attitudes towards risk do not vary across individuals. This paper questions this assumption and analyses which factors influence an individual's risk attitude. Based on questions on lotteries in a large household survey we first semiparametrically estimate an index for risk aversion. We only make weak assumptions about the underlying decision process and our estimation method allows for generalisations of expected utility. We then estimate a structural model based on Cumulative Prospect Theory. Expected utility is strongly rejected and both the value function and the probability weighting function vary significantly with (among other things) age, income, and wealth of the individual.     

Return to work after workplace injury: Injured workers,insurers and employers

Returning injured workers to work is a central object of contemporary workers’ compensation systems. Injured workers’ interactions with insurers and employers are critical to achievement of timely and sustainable return to work outcomes. This article explores the interactions of injured workers with insurers and employers through analysis of their perceptions and experiences. The focus is on experiences with the NSW Workers Compensation scheme since 2012. To frame this analysis, the article proposes a model mapping these interactions, the relationships involved, the health, social and vocational consequences, and the return to work outcomes. The research found not only that the NSW Workers’ compensation system is failing to deliver a timely and durable return to work for many injured workers, but also that, for many, problematic and often pathogenic interactions with employers and insurers are resulting in exacerbated and secondary injuries and negative social and vocational consequences.     

Risk-taking activities and heterogeneity of job-risk tradeoffs

Using data from a large national sample, this article examines how individual differences in risk attitudes affect wage-risk tradeoffs. Smoking and seat belt use are used as proxies for individual willingness to bear risk. Workers who by their behavior indicate a high value of safety-e.g., nonsmokers and seat belt wearers-receive a higher compensating differential per unit of job risk than do workers who engage in either one of the risky behaviors. For the overall sample, the implicit value of a lost workday injury is $79,632. This value ranges from $54,878 for smokers who do not wear a seat belt, to $102,552 for nonsmokers who wear a seat belt.     

Incentives and government relief for risk

Government relief is offered for a wide range of risks-natural disaster, economic dislocation, sickness, and injury. This article explores the effect of such relief on incentives and the allocation of risk in a model with private insurance. It is shown that government relief is inefficient, even when its level is less than the private insurance coverage that individuals would otherwise have purchased and even when private insurance coverage is incomplete due to problems of moral hazard.Harvard University and National Bureau of Economic Research (Cambridge, MA 02138; 617-495-4101). I am grateful for comments from Lucian Bebchuk, Martin Feldstein, John Parsons, Michael Rothschild, Steven Shavell, Lawrence Summers, and a referee, and for support from the John M. Olin Foundation.     

Poverty, Social Exclusion and Social Policy in the Czech Republic

This article analyses the pattern of poverty and social exclusion in the Czech Republic and the impact of social policy on this pattern. The analysis is mostly based on data from the Czech Survey on Social Conditions of Households (2001; 27,000 respondents); Eurostat data provide a benchmark for making international comparisons. The poverty rate in the Czech Republic is among the lowest in Europe. On the other hand, material deprivation, as well as concentration of poverty within specific population groups, is high, with the unemployed facing the highest risk of poverty. Social policy measures in effect reinforce this pattern: while the benefit system is highly redistributive and effectively eliminates income poverty among households of employed persons and among pensioners, incomes of persons outside paid employment are protected less effectively. Labour market policy measures are insufficient in scope and inadequate in targeting groups which are facing the highest risk of labour market exclusion and poverty. We argue that although this practice is effective at present, it is not sustainable in the long term.     

Motorist use of safety equipment: Expected benefits or risk incompetence?

Seat belts, child safety seats, and motorcycle helmets are not used all the time by all drivers, parents, or riders when they travel. Since the safety advantages of these types of equipment are well established, nonuse could be due to risk incompetence. This article starts instead with risk competence to see to what extent use can be attributed to the net benefits expected by individual motorists. Logit analysis of microdata from the Nationwide Personal Transportation Study shows that use is more likely with larger perceived net benefits for all three types of motorists. They are therefore risk competent enough to respond to changes in net benefits in ways and degrees that are qualitatively and ordinally correct.This research was supported in part by the Urban Institute and the Federal Highway Administration under contract DTFH-61-85-C-00107. Ted Miller, Urban Institute, was instrumental in facilitating the work, and Charles Calhoun, Urban Institute, ran the logits for child safety-seat use and motorcycle helmet use at the Bureau of Census. My colleagues Dan Black and John Garen helped estimate wages. For comments I am grateful to Alan Dillingham, John Graham, Richard Jensen, Kip Viscusi, an anonymous referee, and participants in the Applied Microeconomics Workshop at the University of Kentucky. Appreciation aside, none of the people or organizations mentioned are responsible for the results and views in this article. That responsibility falls on the author.     

On the definition of risk aversion

Two definitions of risk aversion have recently been proposed for non-expected utility theories of choice under uncertainty: the former refers the measure of risk aversion (Montesano 1985, 1986 and 1988) directly to the risk premium (i.e. to the difference between the expected value of the action under consideration and its certainty equivalent); the latter defines risk aversion as a decreasing preference for an increasing risk (introduced as mean preserving spreads) (Chew, Karni and Safra 1987, Machina 1987, Röell 1987, Yaari 1987).When the von Neumann-Morgenstern utility function exists both these definitions indicate an agent as a risk averter if his or her utility function is concave. Consequently, the two definitions are equivalent. However, they are no longer equivalent when the von Neumann-Morgenstern utility function does not exist and a non-expected utility theory is assumed. Examples can be given which show how the risk aversion of the one definition can coexist with the risk attraction of the other. Indeed the two definitions consider two different questions: the risk premium definition specifically concerns risk aversion, while the mean preserving spreads definition concerns the increasing (with risk) risk aversion.The mean preserving spreads definition of risk aversion, i.e. the increasing (with risk) risk aversion, requires a special kind of concavity for the preference function (that the derivatives with respect to probabilities are concave in the respective consequences). The risk premium definition of local risk aversion requires that the probability distribution dominates on the average the distribution of the derivatives of the preference function with respect to consequences. Besides, when the local measure of the first order is zero, there is risk aversion according to the measure of the second order if the preference function is concave with respect to consequences.Yaari's (1969) measure of risk aversion is closely linked to the r.p. measure of the second order. Its sign does not indicate risk aversion (if positive) or attraction (if negative) when the measure of the first order is not zero (i.e., in Yaari's language, when subjective odds differ from the market odds).