Hardback
The Economics of Risk and Uncertainty
The compilation of ground-breaking papers contained in this collection offers a complete description of the evolution of knowledge in the economics of risk and time, from its early twentieth-century explorations to its current diversity of approaches. The papers focus first on the basic decisions under uncertainty, and then on asset pricing. They cover both classical expected utility approach and its non-expected utility generalizations, with applications to dynamic portfolio choices, insurance, risk sharing, and risk prevention. Prefaced by an original introduction from the editor, this collection will be valuable for scholars in finance and macroeconomics, particularly those with an interest in the modeling foundations of consumer and investor decisions under uncertainty.
More Information
Contributors
Contents
More Information
The compilation of ground-breaking papers contained in this collection offers a complete description of the evolution of knowledge in the economics of risk and time, from its early twentieth-century explorations to its current diversity of approaches. The papers focus first on the basic decisions under uncertainty, and then on asset pricing. They cover both classical expected utility approach and its non-expected utility generalizations, with applications to dynamic portfolio choices, insurance, risk sharing, and risk prevention. Prefaced by an original introduction from the editor, this collection will be valuable for scholars in finance and macroeconomics, particularly those with an interest in the modeling foundations of consumer and investor decisions under uncertainty.
Contributors
41 articles, dating from 1948 to 2013
Contributors include: K. Arrow, R. Bansal, R. Barro, J. Drèze, D. Kahneman, R. Pindyck, P. Samuelson, A. Sandmo, M. Weitzman
Contributors include: K. Arrow, R. Bansal, R. Barro, J. Drèze, D. Kahneman, R. Pindyck, P. Samuelson, A. Sandmo, M. Weitzman
Contents
Contents:
PART I EXPECTED UTILITY
1. Daniel Bernoulli (1954), ‘Exposition of a New Theory on the Measurement of Risk’, trans. by Louise Sommer, Econometrica, 22 (1), January, 23–36
2. Milton Friedman and L.J. Savage (1948), ‘The Utility Analysis of Choices Involving Risk’, Journal of Political Economy, 56 (4), August, 279–304
3. John W. Pratt (1964), ‘Risk Aversion in the Small and in the Large’, Econometrica, 32 (1–2), January-April, 122–36
4. Michael Rothschild and Joseph Stiglitz (1970), ‘Increasing Risk: I. A Definition’, Journal of Economic Theory, 2 (3), September, 225–43
5. Paul A. Samuelson (1963), ‘Risk and Uncertainty: The Fallacy of the Law of Large Numbers’, Scientia, 57 (6), 1–6
6. Larry G. Epstein and Stephen M. Tanny (1980), ‘Increasing Generalized Correlation: A Definition and Some Economic Consequences’, Canadian Journal of Economics, 13 (1), 16–34
7. Louis Eeckhoudt and Harris Schlesinger (2006), ‘Putting Risk in its Proper Place’, American Economic Review, 96 (1), March, 280–8
8. Christian Gollier and John W. Pratt (1996), ‘Risk Vulnerability and the Tempering Effect of Background Risk’, Econometrica, 64 (5), September, 1109–23
PART II STATIC CHOICES UNDER UNCERTAINTY
9. Charles A. Holt and Susan K. Laury (2002), ‘Risk Aversion and Incentive Effects’, American Economic Review, 92 (5), December, 1644–55
10. Kenneth J. Arrow (1963), ‘Uncertainty and the Welfare Economics of Medical Care’, American Economic Review, 53 (5), December, 941–73
11. Artur Raviv (1979), ‘The Design of an Optimal Insurance Policy’, American Economic Review, 69 (1), March, 84–96
12. Jan Mossin (1968), ‘Aspects of Rational Insurance Purchasing’, Journal of Political Economy, 76 (4), July-August, 533–68
13. Isaac Ehrlich and Gary S. Becker (1972), ‘Market Insurance, Self-Insurance, and Self-Protection’, Journal of Political Economy, 80 (4), July-August, 623–48
14. Robert Wilson (1968), ‘The Theory of Syndicates’, Econometrica, 36 (1), January, 119–32
15. Robert M. Townsend (1994), ‘Risk and Insurance in Village India’, Econometrica, 62 (3), May, 539–91
16. Agnar Sandmo (1971), ‘On the Theory of the Competitive Firm under Price Uncertainty’, American Economic Review, 61 (1), March, 65–73
PART III RISK AND TIME
17. Jacques H. Drèze and Franco Modigliani (1972), ‘Consumption Decisions Under Uncertainty’, Journal of Economic Theory, 5 (3), December, 307–35
18. Kenneth J. Arrow and Anthony C. Fisher (1974), ‘Environmental Preservation, Uncertainty and Irreversibility’, Quarterly Journal of Economics, 88 (2), May, 312–19
19. Robert Pindyck (1991), ‘Irreversibility, Uncertainty and Investment’, Journal of Economic Literature, 29 (3), September, 1110–48
20. Jan Mossin (1968), ‘Optimal Multiperiod Portfolio Policies’, Journal of Business, 41 (2), April, 215–29
21. Paul A. Samuelson (1969), ‘Lifetime Portfolio Selection by Dynamic Stochastic Programming’, Review of Economics and Statistics, 51 (3), August, 239–46
PART IV ASSET PRICING
22. Karl H. Borch (1962), ‘Equilibrium in a Reinsurance Market’, Econometrica, 30 (3), July, 424–44
23. Robert E. Lucas, Jr. (1978), ‘Asset Prices in an Exchange Economy’, Econometrica, 46 (6), November, 1429–46
24. Mark Rubinstein (1974), ‘An Aggregation Theorem for Securities Markets’, Journal of Financial Economics, 1 (3), September, 225–44
25. Rajnish Mehra and Edward Prescott (1985), ‘The Equity Premium: A Puzzle’, Journal of Monetary Economics, 15 (2), March, 145–61
26. Narayana R. Kocherlakota (1996), ‘The Equity Premium: It’s Still a Puzzle’, Journal of Economic Literature, 34 (1), March, 42–71
27. Ian Martin (2012), ‘On the Valuation of Long-Dated Assets’, Journal of Political Economy, 120 (2), April, 346–58
28 Robert J. Barro (1989), ‘Rare Disasters and Asset Markets in the Twentieth Century’, Quarterly Journal of Economics, 121 (3), August, 823–66
29. Martin L. Weitzman (2007), ‘Subjective Expectations and Asset-Return Puzzle’, American Economic Review, 97 (4), September, 1102–30
PART V NON-EXPECTED UTILITY
30. Uzi Segal and Avia Spivak (1990), ‘First Order Versus Second Order Risk Aversion’, Journal of Economic Theory, 51 (1), June, 111–25
31. Matthew Rabin (2000), ‘Risk Aversion and Expected-Utility Theory, A Calibration Theorem’ Econometrica, 68 (5), September, 1281–92
32. Menahem E. Yaari (1987), ‘The Dual Theory of Choice Under Risk’, Econometrica, 55 (1), January, 95–115
33. John Quiggin (1982), ‘A Theory of Anticipated Utility’, Journal of Economic Behavior and Organization, 3 (4), December, 323–43
34. Amos Tyversky and Daniel Kahneman (1992), ‘Advances in Prospect Theory – Cumulative Representation of Uncertainty’, Journal of Risk and Uncertainty, 5 (4), October, 297–323
35. Mark J. Machina (1987), ‘Choice Under Uncertainty: Problems Solved and Unsolved’, Journal of Economic Perspectives, 1 (1), Summer, 121–54
36. Faruk Gul (1991), ‘A Theory of Disappointment Aversion’, Econometrica, 59 (3), May, 667–86
37. Larry G. Epstein and Stanley Zin (1991), ‘Substitution, Risk Aversion and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis’, Journal of Political Economy, 99 (2), April, 263–86
38. Philippe Weil (1989), ‘The Equity Premium Puzzle and the Risk-Free Rate Puzzle’, Journal of Monetary Economics, 24 (3), November, 401–21
39. Ravi Bansal and Amir Yaron (2004), ‘Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles’, Journal of Finance, 59 (4), August, 1481–509
40. Yoram Halevy and Vincent Feltkamp (2005), ‘A Bayesian Approach to Uncertainty Aversion’, Review of Economic Studies, 72 (2), April, 449–66
41. Fabio Maccheroni, Massimo Marinacci and Doriana Ruffino (2013), ‘Alpha as Ambiguity: Robust Mean-Variance Portfolio Analysis’, Econometrica, 81 (3), May, 1075–113
Index
PART I EXPECTED UTILITY
1. Daniel Bernoulli (1954), ‘Exposition of a New Theory on the Measurement of Risk’, trans. by Louise Sommer, Econometrica, 22 (1), January, 23–36
2. Milton Friedman and L.J. Savage (1948), ‘The Utility Analysis of Choices Involving Risk’, Journal of Political Economy, 56 (4), August, 279–304
3. John W. Pratt (1964), ‘Risk Aversion in the Small and in the Large’, Econometrica, 32 (1–2), January-April, 122–36
4. Michael Rothschild and Joseph Stiglitz (1970), ‘Increasing Risk: I. A Definition’, Journal of Economic Theory, 2 (3), September, 225–43
5. Paul A. Samuelson (1963), ‘Risk and Uncertainty: The Fallacy of the Law of Large Numbers’, Scientia, 57 (6), 1–6
6. Larry G. Epstein and Stephen M. Tanny (1980), ‘Increasing Generalized Correlation: A Definition and Some Economic Consequences’, Canadian Journal of Economics, 13 (1), 16–34
7. Louis Eeckhoudt and Harris Schlesinger (2006), ‘Putting Risk in its Proper Place’, American Economic Review, 96 (1), March, 280–8
8. Christian Gollier and John W. Pratt (1996), ‘Risk Vulnerability and the Tempering Effect of Background Risk’, Econometrica, 64 (5), September, 1109–23
PART II STATIC CHOICES UNDER UNCERTAINTY
9. Charles A. Holt and Susan K. Laury (2002), ‘Risk Aversion and Incentive Effects’, American Economic Review, 92 (5), December, 1644–55
10. Kenneth J. Arrow (1963), ‘Uncertainty and the Welfare Economics of Medical Care’, American Economic Review, 53 (5), December, 941–73
11. Artur Raviv (1979), ‘The Design of an Optimal Insurance Policy’, American Economic Review, 69 (1), March, 84–96
12. Jan Mossin (1968), ‘Aspects of Rational Insurance Purchasing’, Journal of Political Economy, 76 (4), July-August, 533–68
13. Isaac Ehrlich and Gary S. Becker (1972), ‘Market Insurance, Self-Insurance, and Self-Protection’, Journal of Political Economy, 80 (4), July-August, 623–48
14. Robert Wilson (1968), ‘The Theory of Syndicates’, Econometrica, 36 (1), January, 119–32
15. Robert M. Townsend (1994), ‘Risk and Insurance in Village India’, Econometrica, 62 (3), May, 539–91
16. Agnar Sandmo (1971), ‘On the Theory of the Competitive Firm under Price Uncertainty’, American Economic Review, 61 (1), March, 65–73
PART III RISK AND TIME
17. Jacques H. Drèze and Franco Modigliani (1972), ‘Consumption Decisions Under Uncertainty’, Journal of Economic Theory, 5 (3), December, 307–35
18. Kenneth J. Arrow and Anthony C. Fisher (1974), ‘Environmental Preservation, Uncertainty and Irreversibility’, Quarterly Journal of Economics, 88 (2), May, 312–19
19. Robert Pindyck (1991), ‘Irreversibility, Uncertainty and Investment’, Journal of Economic Literature, 29 (3), September, 1110–48
20. Jan Mossin (1968), ‘Optimal Multiperiod Portfolio Policies’, Journal of Business, 41 (2), April, 215–29
21. Paul A. Samuelson (1969), ‘Lifetime Portfolio Selection by Dynamic Stochastic Programming’, Review of Economics and Statistics, 51 (3), August, 239–46
PART IV ASSET PRICING
22. Karl H. Borch (1962), ‘Equilibrium in a Reinsurance Market’, Econometrica, 30 (3), July, 424–44
23. Robert E. Lucas, Jr. (1978), ‘Asset Prices in an Exchange Economy’, Econometrica, 46 (6), November, 1429–46
24. Mark Rubinstein (1974), ‘An Aggregation Theorem for Securities Markets’, Journal of Financial Economics, 1 (3), September, 225–44
25. Rajnish Mehra and Edward Prescott (1985), ‘The Equity Premium: A Puzzle’, Journal of Monetary Economics, 15 (2), March, 145–61
26. Narayana R. Kocherlakota (1996), ‘The Equity Premium: It’s Still a Puzzle’, Journal of Economic Literature, 34 (1), March, 42–71
27. Ian Martin (2012), ‘On the Valuation of Long-Dated Assets’, Journal of Political Economy, 120 (2), April, 346–58
28 Robert J. Barro (1989), ‘Rare Disasters and Asset Markets in the Twentieth Century’, Quarterly Journal of Economics, 121 (3), August, 823–66
29. Martin L. Weitzman (2007), ‘Subjective Expectations and Asset-Return Puzzle’, American Economic Review, 97 (4), September, 1102–30
PART V NON-EXPECTED UTILITY
30. Uzi Segal and Avia Spivak (1990), ‘First Order Versus Second Order Risk Aversion’, Journal of Economic Theory, 51 (1), June, 111–25
31. Matthew Rabin (2000), ‘Risk Aversion and Expected-Utility Theory, A Calibration Theorem’ Econometrica, 68 (5), September, 1281–92
32. Menahem E. Yaari (1987), ‘The Dual Theory of Choice Under Risk’, Econometrica, 55 (1), January, 95–115
33. John Quiggin (1982), ‘A Theory of Anticipated Utility’, Journal of Economic Behavior and Organization, 3 (4), December, 323–43
34. Amos Tyversky and Daniel Kahneman (1992), ‘Advances in Prospect Theory – Cumulative Representation of Uncertainty’, Journal of Risk and Uncertainty, 5 (4), October, 297–323
35. Mark J. Machina (1987), ‘Choice Under Uncertainty: Problems Solved and Unsolved’, Journal of Economic Perspectives, 1 (1), Summer, 121–54
36. Faruk Gul (1991), ‘A Theory of Disappointment Aversion’, Econometrica, 59 (3), May, 667–86
37. Larry G. Epstein and Stanley Zin (1991), ‘Substitution, Risk Aversion and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis’, Journal of Political Economy, 99 (2), April, 263–86
38. Philippe Weil (1989), ‘The Equity Premium Puzzle and the Risk-Free Rate Puzzle’, Journal of Monetary Economics, 24 (3), November, 401–21
39. Ravi Bansal and Amir Yaron (2004), ‘Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles’, Journal of Finance, 59 (4), August, 1481–509
40. Yoram Halevy and Vincent Feltkamp (2005), ‘A Bayesian Approach to Uncertainty Aversion’, Review of Economic Studies, 72 (2), April, 449–66
41. Fabio Maccheroni, Massimo Marinacci and Doriana Ruffino (2013), ‘Alpha as Ambiguity: Robust Mean-Variance Portfolio Analysis’, Econometrica, 81 (3), May, 1075–113
Index
