Capacity Aversion

Research output: Other Conference ContributionsConference Paper (other)Other Conference Paperpeer-review

Abstract

This paper examines an agent’s asymmetric attitudes toward non-probabilistic subjective uncertainty. Our main theorems are generalizations of Arrow-Pratt approximation and the Jensen inequality under model uncertainty as described by the Choquet expected utility model of Schmeidler (1982,1989), Gilboa (1987) and Sarin and Wakker (1992). We show that the order of Arrow-Pratt approximation differs between gains and losses, which is not the case in the the smooth ambiguity model of Klibanoff, Marinacci, and Mukerji (2005). We propose the Jensen inequality for all concave functions and provide a new economic meaning to Schmeidler’s uncertainty aversion by disentangling risk aversion from uncertainty aversion. These results are then applied to analyze the demand for insurance and public investment decisions.
Original languageEnglish
Publication statusPublished - 17 Sep 2018
Event45th Annual Seminar of the European Group of Risk and Insurance Economists - Germany, Nuremberg, Germany
Duration: 17 Sep 201819 Sep 2018
https://www.vwrm.rw.fau.de/egrie-2018/conference-programme/

Conference

Conference45th Annual Seminar of the European Group of Risk and Insurance Economists
Abbreviated title45th Annual EGRIE Seminar
CountryGermany
CityNuremberg
Period17/09/1819/09/18
Internet address

Fingerprint

Uncertainty aversion
Jensen's inequality
Approximation
Public investment
Choquet expected utility
demand for insurance
Uncertainty
Investment decision
Risk aversion
Economics
Model uncertainty

Cite this

LI, J., WANG, J., & YICK, H. Y. M. (2018). Capacity Aversion. Paper presented at 45th Annual Seminar of the European Group of Risk and Insurance Economists, Nuremberg, Germany.
LI, Jingyuan ; WANG, Jianli ; YICK, Ho Yin Martin. / Capacity Aversion. Paper presented at 45th Annual Seminar of the European Group of Risk and Insurance Economists, Nuremberg, Germany.
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abstract = "This paper examines an agent’s asymmetric attitudes toward non-probabilistic subjective uncertainty. Our main theorems are generalizations of Arrow-Pratt approximation and the Jensen inequality under model uncertainty as described by the Choquet expected utility model of Schmeidler (1982,1989), Gilboa (1987) and Sarin and Wakker (1992). We show that the order of Arrow-Pratt approximation differs between gains and losses, which is not the case in the the smooth ambiguity model of Klibanoff, Marinacci, and Mukerji (2005). We propose the Jensen inequality for all concave functions and provide a new economic meaning to Schmeidler’s uncertainty aversion by disentangling risk aversion from uncertainty aversion. These results are then applied to analyze the demand for insurance and public investment decisions.",
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LI, J, WANG, J & YICK, HYM 2018, 'Capacity Aversion' Paper presented at 45th Annual Seminar of the European Group of Risk and Insurance Economists, Nuremberg, Germany, 17/09/18 - 19/09/18, .

Capacity Aversion. / LI, Jingyuan; WANG, Jianli; YICK, Ho Yin Martin.

2018. Paper presented at 45th Annual Seminar of the European Group of Risk and Insurance Economists, Nuremberg, Germany.

Research output: Other Conference ContributionsConference Paper (other)Other Conference Paperpeer-review

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T1 - Capacity Aversion

AU - LI, Jingyuan

AU - WANG, Jianli

AU - YICK, Ho Yin Martin

PY - 2018/9/17

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N2 - This paper examines an agent’s asymmetric attitudes toward non-probabilistic subjective uncertainty. Our main theorems are generalizations of Arrow-Pratt approximation and the Jensen inequality under model uncertainty as described by the Choquet expected utility model of Schmeidler (1982,1989), Gilboa (1987) and Sarin and Wakker (1992). We show that the order of Arrow-Pratt approximation differs between gains and losses, which is not the case in the the smooth ambiguity model of Klibanoff, Marinacci, and Mukerji (2005). We propose the Jensen inequality for all concave functions and provide a new economic meaning to Schmeidler’s uncertainty aversion by disentangling risk aversion from uncertainty aversion. These results are then applied to analyze the demand for insurance and public investment decisions.

AB - This paper examines an agent’s asymmetric attitudes toward non-probabilistic subjective uncertainty. Our main theorems are generalizations of Arrow-Pratt approximation and the Jensen inequality under model uncertainty as described by the Choquet expected utility model of Schmeidler (1982,1989), Gilboa (1987) and Sarin and Wakker (1992). We show that the order of Arrow-Pratt approximation differs between gains and losses, which is not the case in the the smooth ambiguity model of Klibanoff, Marinacci, and Mukerji (2005). We propose the Jensen inequality for all concave functions and provide a new economic meaning to Schmeidler’s uncertainty aversion by disentangling risk aversion from uncertainty aversion. These results are then applied to analyze the demand for insurance and public investment decisions.

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M3 - Conference Paper (other)

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LI J, WANG J, YICK HYM. Capacity Aversion. 2018. Paper presented at 45th Annual Seminar of the European Group of Risk and Insurance Economists, Nuremberg, Germany.