On the intensity of downside risk aversion

The degree of downside risk aversion (or equivalently prudence) is so far usually measured by . We propose here another measure, , which has specific and interesting local and global properties. Some of these properties are to a wide extent similar to those of the classical measure of absolute risk aversion, which is not always the case for . It also appears that the two measures are not mutually exclusive. Instead, they seem to be rather complementary as shown through an economic application dealing with a simple general equilibrium model of savings.

Some Limitations of Aggregate Exposure Metrics

Aggregate exposure metrics based on sums or weighted averages of component exposures are widely used in risk assessments of complex mixtures, such as asbestos-associated dusts and fibers. Allowed exposure levels based on total particle or fiber counts and estimated ambient concentrations of such mixtures may be used to make costly risk-management decisions intended to protect human health and to remediate hazardous environments. We show that, in general, aggregate exposure information alone may be inherently unable to guide rational risk-management decisions when the components of the mixture differ significantly in potency and when the percentage compositions of the mixture exposures differ significantly across locations. Under these conditions, which are not uncommon in practice, aggregate exposure metrics may be "worse than useless," in that risk-management decisions based on them are less effective than decisions that ignore the aggregate exposure information and select risk-management actions at random. The potential practical significance of these results is illustrated by a case study of 27 exposure scenarios in El Dorado Hills, California, where applying an aggregate unit risk factor (from EPA's IRIS database) to aggregate exposure metrics produces average risk estimates about 25 times greater - and of uncertain predictive validity - compared to risk estimates based on specific components of the mixture that have been hypothesized to pose risks of human lung cancer and mesothelioma.     

How Probabilistic Risk Assessment Can Mislead Terrorism Risk Analysts

Traditional probabilistic risk assessment (PRA), of the type originally developed for engineered systems, is still proposed for terrorism risk analysis. We show that such PRA applications are unjustified in general. The capacity of terrorists to seek and use information and to actively research different attack options before deciding what to do raises unique features of terrorism risk assessment that are not adequately addressed by conventional PRA for natural and engineered systems—in part because decisions based on such PRA estimates do not adequately hedge against the different probabilities that attackers may eventually act upon. These probabilities may differ from the defender's (even if the defender's experts are thoroughly trained, well calibrated, unbiased probability assessors) because they may be conditioned on different information. We illustrate the fundamental differences between PRA and terrorism risk analysis, and suggest use of robust decision analysis for risk management when attackers may know more about some attack options than we do.     

Risk vulnerability: a graphical interpretation

The article gives a graphical interpretation of the concept of risk vulnerability. It shows that in a specific context of binary lotteries the assumption of risk vulnerability adds to prudence what the assumption of decreasing absolute risk aversion adds to risk aversion. We end the presentation showing that results can be extended to the concept of multiplicative risk vulnerability.     

Discrimination in mortgage lending: The Home Mortgage Disclosure Act

There exists a long history of legislation at the national and state levels in the United States designed to have an impact on the home mortgage lending market. The present research makes use of data available through one national legislative act, the Home Mortgage Disclosure Act, to ascertain if some census tracts in Memphis, Tennessee are experiencing lower than expected rates of mortgage lending from conventional and governmental sources due to the percent of their population which is black. The data indicate that even after instituting objective controls, i.e., income, neighborhood conditions, and two dimensions of demand, the percent of the population which is black significantly affects (negatively) lending rates. These results are discussed in regard to (1) the implications for patterns of city growth and development, and (2) further legislative action required to make the study of such dis-crimination easier for a public charged with that responsibility.     

The Benefits and Costs of Using Metadata to Improve Enterprise Document Search

The literature shows that there are many problems with enterprise document search. Studies reveal that typical knowledge workers spend between 10% and 20% of their time searching for documents they never find. While many argue that metadata can improve enterprise document search, in reality few organizations use metadata. This represents a missed opportunity. This article describes the results of two experiments that use simulation to evaluate the actual impact of metadata on the costs and benefits of enterprise search. The first study provides quantitative evidence of the increase in recall and precision that stems from the use of metadata‐enhanced document searches. The second study demonstrates that simple metadata structures can be nearly as effective as complex ones, implying that the cost of creating and maintaining metadata is likely to be lower than generally thought. This is the first study to provide explicit quantitative evidence of the gains that can be achieved from the use of metadata, and one of only a handful of studies that examines the cost of creating and maintaining metadata.