Choices with Risk: Beyond the Mean and Variance

Alderfer, Clayton P.; Bierman, Harold

doi:10.1086/295286

Cited by 90 publications

(35 citation statements)

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“…Other studies have found the same lack of agreement on different measures of risk propensity (Greene, 1963(Greene, , 1964Maehr and Videbeck, 1968;Brichacek, 1968;Weinstein and Martin, 1969;Weinstein, 1969;Alderfer and Bierman, 1970;Higbee, 1971;and Bassler, 1972). Slovic (1964) concluded that the lack of agreement among the measures might be due to the multi-dimensionality of risk and its subjectivity.…”

Section: Introductionmentioning

confidence: 81%

A portfolio of risk measures

MacCrimmon

Wehrung

1985

Theor Decis

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A comprehensive set of sixteen measures of willingness to take risks has been developed. This set includes measures from three categories: measures from standardized risky situations having an underlying theory of risk, measures inferred from revealed choices in financial decisions, and measures derived from attitudes. A study of over 500 top-level business executives shows significant relationships within categories, but relatively little relationship across categories. Context differences, especially personal versus business situations and opportunities versus threats, underlie the responses.

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Section: Introductionmentioning

confidence: 81%

A portfolio of risk measures

MacCrimmon

Wehrung

1985

Theor Decis

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“…These are clearly areas for further research, as is disentangling the consequences of differences in time and risk preferences from initial risk effects. Parallel developments and findings in the finance literature aiming to isolate and analyse preferences for skewness from those of variance and expectation (Alderfer and Bierman 1970;Barberis and Huang 2008) should be brought into the study of physical risk changes.…”

Section: Discussion Of Findingsmentioning

confidence: 99%

How would you like your gain in life expectancy to be provided? An experimental approach

et al. 2010

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“…But insurance may lead to changes beyond those that are captured by mean and variance, so that mean-variance analysis is inconsistent with important classes of preferences. For example, risk averse individuals may distinguish asymmetrically between deviations from the mean due to extremely good outcomes and extremely poor outcomes (Alderfer & Bierman 1970). Agricultural insurance products specifically target those negative outcome events rather than all variation (Turvey 1992).…”

Section: Mean-variance Metricsmentioning

confidence: 99%

Basis Risk and the Welfare Gains from Index Insurance: Evidence from Northern Kenya

Jensen

2014

SSRN Journal

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Index insurance products circumvent many of the transaction costs and asymmetric information problems that obstruct provision of low value conventional insurance policies in developing countries. Recent years have seen tremendous growth in index insurance pilots in developing countries, but there has been little progress in our understanding of the quality of those products. Basis risk, or remaining uninsured risk, is a widely recognized, but rarely measured drawback of index insurance that carries significant implications for the quality of any such product. This research uses a rich longitudinal household dataset to examine basis risk associated with an index based livestock insurance (IBLI) product available to pastoralists in northern Kenya since 2010. We find that IBLI coverage reduces downside risk for most households when purchased at actuarially fair premium rates and has net utility benefits for most even at commercial rates. Examining the components of basis risk, we find that IBLI reduces exposure to covariate risk due to high loss events by an average of 62.8%. The benefits of reduced covariate risk exposure are relatively small, however, due to high exposure to seemingly mostly random idiosyncratic risk, even in this population often thought to suffer largely from covariate shocks. Depending on covariate region, IBLI policy holders are left with an average of between 62.3% and 76.7% of their original risk due to high loss events. This research underscores the need for caution when promoting index insurance as a tool for reducing exposure to risk and the importance of ex post product evaluation.

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Choices with Risk: Beyond the Mean and Variance

Cited by 90 publications

References 0 publications

A portfolio of risk measures

A portfolio of risk measures

How would you like your gain in life expectancy to be provided? An experimental approach

Basis Risk and the Welfare Gains from Index Insurance: Evidence from Northern Kenya

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