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Suppose an agent is choosing between rescuing more people with a lower probability of success, and rescuing fewer with a higher probability of success. How should they choose? Our moral judgments about such cases are not well-studied, unlike the closely analogous non-moral preferences over monetary gambles. In this paper, I present an empirical study which aims to elicit the moral analogues of our risk preferences, and to assess whether one kind of evidence—concerning how they depend on outcome probabilities—can debunk them. I find significant heterogeneity in our moral risk preferences—in particular, moral risk-seeking and risk-neutrality are surprisingly popular. I also find that subjects' judgments aren't probability-dependent, thus providing an empirical defense against debunking arguments from probability dependence. [ABSTRACT FROM AUTHOR]

Throughout his career, Ngo Van Long made substantial contributions to applied economic theory. With nearly 200 articles and 8 books to his credit, his contributions span the fields of international trade, industrial organization, public finance, natural resources, and environmental economics. This paper contributes to the significant literature which developed after Long (J Econ Theory 10:42–53, 1975), an early contribution to exhaustible resource theory published in the year Long received his PhD. He deduced the optimal extraction path of an exhaustible resource when there is a risk the resource will be nationalized at an unknown time. After surveying the related literature, we deduce the implications of Long's dynamics when the random event would raise rather than lower the competitive price of the asset. We illustrate with 3 applications: an investment project which a court might allow to commence; land with regulatory restrictions preventing development which might be rezoned for an income-generating use; and a futures contract on a currency which might be revalued before the contract expires. [ABSTRACT FROM AUTHOR]

This paper presents a financial Stackelberg game model with two partially informed risk neutral insiders. Each insider receives a private signal about the stock value and competes with the other insider under a Stackelberg setting. Linear strategies for the game's participants are considered and normal distributions for the fundamentals are assumed. Based on the Stackelberg game and the Backward Induction theory, the unique linear equilibrium is characterized. The findings reveal that the level of partial information might increase/decrease the insiders' profits as well as the market parameter in the Stackelberg setting relative to the Cournot setting. Additionally, this paper considers the information sharing scenario between the two insiders competing in this Stackelberg game. The results show that multiple equilibria exist in contrast to the information sharing scenario in the Cournot game where the Nash equilibrium is unique. [ABSTRACT FROM AUTHOR]

We study a generalization of the static model of [11] with two risk neutral insiders to the case where each insider is partially informed about the value of the stock. First, we provide a necessary and sufficient condition for the uniqueness of the linear Bayesian equilibrium. Specifically, we show that, when the covariance matrix of the errors terms of the insiders' signals, is not singular, the linear Bayesian equilibrium is not unique. Then, we carry out a comparative statics analysis.

This paper presents a financial Stackelberg game model with two partially informed risk neutral insiders. Each insider receives a private signal about the stock value and competes with the other insider under a Stackelberg setting. Linear strategies for the game’s participants are considered and normal distributions for the fundamentals are assumed. Based on the Stackelberg game and the Backward Induction theory, the unique linear equilibrium is characterized. The findings reveal that the level of partial information might increase/decrease the insiders’ profits as well as the market parameter in the Stackelberg setting relative to the Cournot setting. Additionally, this paper considers the information sharing scenario between the two insiders competing in this Stackelberg game. The results show that multiple equilibria exist in contrast to the information sharing scenario in the Cournot game where the Nash equilibrium is unique.

The Gram–Charlier expansion of a target probability density, f (x) , is an L 2 -convergent series f (x) = ∑ 0 ∞ c n p n (x) f ∗ (x) in terms of a reference density f ∗ (x) and its orthonormal polynomials p n (x). We implement this for the density of a regime-switching Lévy process at a given time horizon T. The main step is the evaluation of moments of all orders of f (x) in terms of model primitives, for which we give a matrix-exponential representation. A number of numerical examples, in part involving pricing of European options, are presented. The traditional choice of f ∗ (x) as normal with the same mean and variance as f (x) only works for the regime-switching Black–Scholes model. Outside the scope of Black–Scholes, f ∗ (x) is typically taken as a normal inverse Gaussian. A similar analysis is given for time-changed Lévy processes modelling stochastic volatility. [ABSTRACT FROM AUTHOR]

The compatibility of Environmental, Social and Governance (ESG) risk management with the investment management requirements under the investors' fiduciary duties (FD) figures among the key questions in today's context of a rapid growth of sustainable investment strategies. Despite some legal developments, namely, in Europe, investors still have no clear answer to this question, which leaves them inert in the face of these new, unconventional types of risk. In our research, we explore the recent advancements in the EU and the US legal practice with the objective to establish to what extent the FD actually requires investors to consider ESG risks in their investment management decisions. Through analysis, we define a theoretical decision-making pattern for ESG risk management set by the current FD law as applied to investors and identify: 1) ESG risk materiality and 2) the effectiveness of ESG risk hedging as its fundamental elements. Then, we design a theoretical representation of ESG risk materiality under the FD legal constraints and identify that the current FD law binds investors to assimilate ESG risks to financial risks; thus, their management is required only if they are financially material for investments. We show that this principle equally applies to long-term ESG risks (like climate change); investors are incentivised to manage only those that are sufficiently financially material considering the applied hypothetical discount rate. Also, through the case study of a recent US ERISA ESOP lawsuit, we reveal that risk aversion towards probability to successfully hedge material ESG risks could impede efficient risk management by incentivising investors not to hedge a material ESG risk, i.e. to breach their FD. [ABSTRACT FROM AUTHOR]

We justify risk neutral equilibrium bidding in commonly known fair division games with incomplete information by an evolutionary setup postulating (i) minimal common knowledge, (ii) optimal responses to conjectural beliefs how others behave and (iii) evolutionary selection of conjectural beliefs with fitness measured by expected payoffs. After justifying the game forms we derive the evolutionary games for first- and second-price fair division and determine the evolutionarily stable conjectures. The latter coincide with equilibrium bidding, irrespectively of the number of bidders, i.e., heuristic belief adaptation can imply the same bidding behavior as equilibrium analysis based on common knowledge and counterfactual bidding. [ABSTRACT FROM AUTHOR]

This paper examines the impact of different risk attitudes on the financial decisions of two insiders trading in the stock market. We consider a static version of the Kyle (Econometrica 53:1315–1335, 1985) model with two insiders. Insider 1 is risk neutral while insider 2 is risk averse with negative exponential utility. First, we analytically prove the existence of a unique linear equilibrium. Second, we carry out a comparative static analysis with respect to the duopoly case of risk-neutral insiders (Tighe in Three essays on insider trading. Unpublished Ph.D dissertation, University of Illinois at Champaign-Urbana, 1989) and with respect to the duopoly case of risk-averse insiders (Holden and Subrahmanyam in Econ Lett 44:181–190, 1994) models. Our findings reveal that the market depth and the information revelation are higher in Tighe (1989) than in our model. However, compared to Holden and Subrahmanyam (1994), we find that the market depth depends crucially on the degree of risk aversion. Finally, we show that regardless of the degree of risk aversion, the stock price reveals more information in our model than the stock price in Holden and Subrahmanyam (1994). [ABSTRACT FROM AUTHOR]

Give a risk neutral investor the choice to acquire a costly signal prior to Walrasian asset market equilibrium. She refuses to pay for the signal. The reason is that a risk neutral investor is indifferent between a risky stock or a safe bond in equilibrium and expects the same return to her portfolio ex ante, whether or not she acquires information. Risk neutral asset pricing thus implies the absence of costly information from asset price,unless non-Walrasian market conditions prevail. Non-Walrasian market conditions, however, get reflected in price beyond the asset's fundamental payoff value.

The design of distributed energy systems (DES) is affected by uncertainty, which can render designs suboptimal. DES design is further complicated by the various decision-maker attitudes towards uncertainty, which range between pessimism and optimism. An additional important factor is the risk of extreme outcomes ( e.g. high costs) in highly unfavourable scenarios. Incorporating all decision-maker attitudes towards uncertainty in DES design enables more informed design decisions under uncertainty. In this work, a two-stage stochastic program for the design of cost-optimal DES under uncertainty is presented. The model’s key innovation is the use of multiple criteria that form the model’s objective functions and reflect the whole range of attitudes towards uncertainty. As uncertain model parameters, building energy demands, solar radiation, energy carrier prices and feed-in tariffs are considered. In the model’s first stage, DES design decisions are included, which are made before the uncertain parameters become known. In the second stage, DES operating decisions are made for multiple scenarios of the uncertain parameters. The model is used to design a DES for a Swiss neighbourhood and diverse optimal DES configurations are obtained for the different criteria. The systems’ economic performance and characteristics are contrasted and the trade-offs between the criteria are highlighted. [ABSTRACT FROM AUTHOR]

In this work, we study how risk aversion behavior affects the final outcomes of inspection games. We formulate two nonzero-sum parametric games between an inspector and an agent, which are distinguished by the players’ risk behaviors: risk aversion or risk neutrality. Both games are solved efficiently, and closed-form equilibria solutions are provided. The solutions of the two games are compared with each other and with a third game where both players are risk neutral. Analysis of the results reveals that the risk aversion of the agent has a stronger effect than that of the inspector, since the equilibrium strategies and utilities of both players depend on the risk aversion of the agent, whereas only the agent’s equilibrium strategies and the inspector’s equilibrium utility depend on the risk aversion of the inspector. Analysis of an incomplete information game version, when the agent has a private risk attitude, reveals that in order to know how to act in equilibrium, the inspector must know the probability that the agent is risk averse. [ABSTRACT FROM AUTHOR]

We study a generalization of the static model of [11] with two risk neutral insiders to the case where each insider is partially informed about the value of the stock. First, we provide a necessary and sufficient condition for the uniqueness of the linear Bayesian equilibrium. Specifically, we show that, when the covariance matrix of the errors terms of the insiders' signals, is not singular, the linear Bayesian equilibrium is not unique. Then, we carry out a comparative statics analysis., Competing Interests: The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper., (© 2023 The Authors.)

Highlights: [•] We test a binary lottery procedure for inducing risk neutrality in a subjective belief elicitation task. [•] Prior research shows that the binary lottery procedure induces a shift toward risk neutrality. [•] But only when subjects are given a risk preference elicitation task defined over objective probabilities. [•] We find that this procedure also induces linear utility in a subjective probability elicitation task. [•] And it can induce direct subjective probabilities revelation in subjects even with popular non-expected utility preferences. [ABSTRACT FROM AUTHOR]

Abstract: We evaluate the binary lottery procedure for inducing risk neutral behavior. We strip the experimental implementation down to bare bones, taking care to avoid any potentially confounding assumptions about behavior having to be made. In particular, our evaluation does not rely on the assumed validity of any strategic equilibrium behavior, or even the customary independence axiom. We show that subjects sampled from our population are generally risk averse when lotteries are defined over monetary outcomes, and that the binary lottery procedure does indeed induce a statistically significant shift toward risk neutrality. This striking result generalizes to the case in which subjects make several lottery choices and one is selected for payment. [Copyright &y& Elsevier]