Two-parameter decision models and rank-dependent expected utility

This paper extends the existing literature concerning the relationship between two parameter decision models and those based on expected utility in two main directions. The first relaxes Meyer's location and scale (or Sinn's linear class) condition and shows that a two-parameter representation of preferences over uncertain prospects and the expected utility representation yield consistent rankings of random variables when the decision maker's choice set is restricted to random variables differing by mean shifts and monotone meanpreserving spreads. The second shows that the rank-dependent expected utility model is also consistent with two-parameter ranking methods if the probability transform satisfies certain dominance conditions. The main implication of these results is that the simple two-parameter model can be used to analyze the comparative statics properties of a wide variety of economic models, including those with multiple sources of uncertainty when the random variables are comonotonic. To illustrate this point, we apply our results to the problem of optimal portfolio investment with random initial wealth. We find that it is relatively easy to obtain strong global comparative statics results even if preferences do not satisfy the independence axiom.     

Analyzing the Demand for Deductible Insurance

This paper investigates aspects of insurance demand related to deductible insurance. In particular, an important issue concerning analysis of the optimal deductible level is resolved. A simple sufficient restriction on the pricing of insurance is given which ensures that the second order condition for choosing the expected utility maximizing deductible level is met for any risk averse decision maker. This restriction is stated and its sufficiency is demonstrated using the level of expected indemnification rather than the level of the deductible as the choice variable in the decision model.     

Negotiating face-to-face: Men's facial structure predicts negotiation performance

Although a great deal of research has examined specific behaviors that positively affect leaders' negotiation processes and outcomes, there has been considerably less attention devoted to stable characteristics, psychological or physical, that might also influence outcomes at the bargaining table. In the current research, we identify a measureable physical trait – the facial width-to-height ratio – that predicts negotiation performance in men. Across four studies, we show that men with greater facial width-to-height ratios are less cooperative negotiators compared to men with smaller facial ratios. This lack of cooperation allows men with greater facial width-to-height ratios to claim more value when negotiating with other men, but inhibits their ability to discover creative agreements that benefit all negotiating parties. These results provide insight into the factors linking leadership, facial structure and conflict resolution.     

The Interaction Between the Demands for Insurance and Insurable Assets

Holding more of the riskless asset and insuring the risky asset are two ways to reduce portfolio risk. These methods can be employed jointly. As a result, the amount of insurance selected to indemnify against possible losses from holding a risky asset depends, in general, on the quantities of the risky and riskless assets held in the portfolio, and vice versa. In decision models where expected utility is maximized, relatively little has been done to integrate these two decisions into a single model. Such a model is formulated in this paper and the interaction between the demand for insurance and the demand for an insurable risky asset is examined.     

Clozapine: a new drug for schizophrenia

Clozapine, a new drug for schizophrenia, was recently released for use. We have described the drug and nursing care involved for patients who are on acute inpatient unit for a trial of the drug. From our early observations, clozapine appears to be a promising drug for patients who have not responded to standard neuroleptics.     

Deterministic transformations of random variables and the comparative statics of risk

In this article, a general class of deterministic transformations that can be interpreted as changes in risk are identified. This provides a fourth characterization of a Rothschild-Stiglitz increase in risk. In addition, a particular subclass of these transformations, termed simple transformations, is shown to be well suited for comparative static analyses. This subclass contains as a special case the linear transformation used so often in the literature. A theorem is presented that generalizes the known comparative static results for large as well as small changes in risk.