Risk and choice: A research saga

Gollier, Christian; Hammitt, James K.; Treich, Nicolas

doi:10.1007/s11166-013-9175-7

Cited by 21 publications

(9 citation statements)

References 109 publications

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“…As already mentioned above, there is a large literature on self-insurance and self-protection, and the very brief overview that we give here is by no means exhaustive. We refer the interested reader to [22], [15] (Chapter 9) and to the paper [9], which provides a survey on the economics of prevention.…”

Section: Introductionmentioning

confidence: 99%

Prevention efforts, insurance demand and price incentives under coherent risk measures

Bensalem

Santibáñez²,

Kazi-Tani³

2020

Insurance: Mathematics and Economics

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This paper studies an equilibrium model between an insurance buyer and an insurance seller, where both parties' risk preferences are given by convex risk measures. The interaction is modeled through a Stackelberg type game, where the insurance seller plays first by offering prices, in the form of safety loadings. Then the insurance buyer chooses his optimal proportional insurance share and his optimal prevention effort in order to minimize his risk measure. The loss distribution is given by a family of stochastically ordered probability measures, indexed by the prevention effort. We give special attention to the problems of self-insurance and self-protection. We prove that the formulated game admits a unique equilibrium, that we can explicitly solve by further specifying the agents criteria and the loss distribution. In self-insurance, we consider also an adverse selection setting, where the type of the insurance buyers is given by his loss probability, and study the screening and shutdown contracts. Finally, we provide case studies in which we explicitly apply our theoretical results.

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Section: Introductionmentioning

confidence: 99%

Prevention efforts, insurance demand and price incentives under coherent risk measures

Bensalem

Santibáñez²,

Kazi-Tani³

2020

Insurance: Mathematics and Economics

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“…The main reason is the arduousness of measuring it with a simple test. Even if the empirical analysis seems to be still at the outset, after the paper by Eeckhoudt and Schlesinger [2006], in the last few years a fair number of experimental investigations have been performed on this topic (for a comprehensive review see Gollier et al, 2013, and. The milestone study of Eeckhoudt and Schlesinger [2006] implements a model-independent way to study higher-order risk attitudes, and coin the terminology "risk apportionment of order n".…”

Section: Literature Reviewmentioning

confidence: 99%

Risk aversion, prudence and temperance: It is a matter of gap between moments

Colasante

Riccetti

2020

Journal of Behavioral and Experimental Finance

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Higher order risk preferences are important determinants of choices under uncertainty. We build a questionnaire different from usually adopted ones: our questionnaire is simpler in order to reduce the number of random choices, and it includes questions with largely diversified stake sizes to observe different gaps between moments. Moreover, we collect results from a large and heterogeneous population to provide more general and unbiased results. Our results confirm the preference of the majority of the respondents for higher odd and lower even moments of the expected return distribution. However, we highlight three features: (i) the importance of the gap between the values of the corresponding moments of the two choices, (ii) the behavioral change in presence of a positive/zero/negative expected value, (iii) the huge heterogeneity in behaviors, also due to the complexity of the choice as an important driver of the propensity to switch from choosing on the basis of preferences to choo sing randomly. We also find that age and geographical location are important determinants of risk propensity.

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“…Many academics discuss Knight's distinction between risk and uncertainty (Gollier et al, 2013;Mikes, 2011;Power, 2009;Zhao et al, 2015), suggesting that "pure" uncertainty implies that no information about possible future circumstances and their probabilities exists, while risk implies at least a partial knowledge of such probabilities (Krane et al, 2014).…”

Section: Risk Rationalitiesmentioning

confidence: 99%

“…So far, it seems that empirical research on the influence of uncertainty and risk on risk management practice is yet to emerge (Gollier et al, 2013). The concept of uncertainty, and especially the question of when uncertainty turns into a risk, has rarely been mentioned in ERM research (Bromiley and Rau, 2014).…”

Section: Risk Rationalitiesmentioning

confidence: 99%

Emerging IT Risks: Insights from German Banking

Ashby

Buck

Nöth-Zahn

et al. 2018

Geneva Pap Risk Insur Issues Pract

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How do German banks manage the emerging risks from IT innovations, e.g. cyber risk? With a focus on process, roles and responsibilities, field data from ten banks participating in the 2014 ECB stress test were collected by interviewing IT managers, risk managers and external experts. Current procedures for handling emerging risks in German banks were identified from the interviews and analysed, guided by the extant literature.A clear gap was found between Enterprise Risk Management (ERM) as a general approach to risks threatening firms' objectives, and ERM's neglect of emerging risks, e.g. those associated with IT innovations. The findings suggest that ERM should be extended towards the collection and sharing of knowledge to allow an initial understanding and description of emerging risks, as opposed to the traditional ERM approach involving estimates of impact and probability. For example, as cyber risks emerge from an IT innovation, the focus may need to switch towards reducing uncertainty by knowledge acquisition. Since single managers seldom possess all relevant knowledge of an IT innovation, various stakeholders may need to be involved, exploiting their expert knowledge. Runde, 2014;Flage and Aven, 2015). This gives rise to several unanswered questions:Research Question 1 (RQ1): What suggestions can be offered by enterprise risk management to manage these IT innovation-driven emerging risks?Research Question 2 (RQ2): When is an uncertainty understood to be an emerging risk?Research Question 3 (RQ3): Who should be involved in the management of emerging risks from IT, according to banks and consultants?These questions have been largely ignored in both theory and practice (Wilson et al., 2010).In terms of our study, 70% of interviewees had not actively considered emerging IT risks in their risk management. Banks in general adopted a passive stance, waiting to see how things developed, and how other banks responded.The current academic debate suggests that the management of emerging risks, such as cyber risks, requires an enterprise-wide approach (Anginer et al., 2014;COSO, 2017; RIMS, 2010). Not only because such risks can have a far-reaching effect on the operations and reputations of organisations, but also because of the opportunities which can be gained from AuthorResearch classification and area Quantitative, qualitative Research topic Main findingsAebi et al.

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Risk and choice: A research saga

Cited by 21 publications

References 109 publications

Prevention efforts, insurance demand and price incentives under coherent risk measures

Prevention efforts, insurance demand and price incentives under coherent risk measures

Risk aversion, prudence and temperance: It is a matter of gap between moments

Emerging IT Risks: Insights from German Banking

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