This study considers risky investment projects under adverse selection and examines optimal penalties for erroneous auditing reports to maximize social welfare. These penalties give firms an incentive to choose accounting policies that maximize social welfare. We characterize the optimal penalties such that efficient firms choose an aggressive accounting policy and inefficient firms choose a conservative accounting policy.

This study examines how regret and rejoicing affect mixed insurance choice and demand. In contrast to expected utility theory, regret and rejoicing may explain why some individuals prefer to hold mixed insurance rather than term insurance. In this study, we derive the conditions under which an individual prefers to hold mixed insurance rather than term insurance. We also study demand for mixed insurance and specify the factors that influence the demand motive. The demand motive is determined by the risk effect and the rejoicing effect, when the rejoicing effect dominates the risk effect, under-insurance is optimal, and vice versa. (C) 2016 Elsevier B.V. All rights reserved.

This paper surveys recent developments of higher-order risk aversion and its intensities, and examines a direction of their future research. First, we provide a brief review of risk aversion and its intensities. Then, we clarify why explorations of higher-order risk aversion and its intensities, are important and necessary from both theoretical and empirical viewpoints. Finally, current research of them is reviewed, and we give some comments on a direction of future research.

This paper studies the "dual" theory of the smooth ambiguity model introduced by Klibanoff et al. (Econometrica 73:1849-1892, 2005). Unlike the original model, we characterize attitudes toward ambiguity captured by second-order probabilities. First, we give a set of axioms to derive a dual representation of the smooth ambiguity model. Second, we present a characterization of ambiguity aversion. Last, as an application of our dual model to a portfolio problem, we conduct comparative static predictions which give sufficient conditions to guarantee that an increase in smooth ambiguity aversion decreases the optimal portfolio.

Precautionary saving is defined as a buffer action when households face income uncertainty We discuss the importance of precautionary saving through the expected utility framework. Furthermore, we explore recent researches: the effect of a multi-attribute utility to precautionary saving and risk-sharing action in a household.

This paper considers a static asset market with dependent background risk, which is described as regression dependence. We examine a condition of preferences to determine if dependent background risk decreases equilibrium asset prices. In such a condition, absolute risk aversion decreases and relative risk aversion is less than unity.

This paper considers a static existing asset market with dependent background risk, which is described as regression dependence. We examine a condition of preferences to determine that a dependent background risk decreases equilibrium asset prices. In such a condition, absolute risk aversion decreases and relative risk aversion is less than unity.

In this paper, we examine the properties of subjective probabilities induced by optimal expectations. We show that investors who follow optimal expectations underweigh small probabilities and overweigh large probabilities in a simple binary economy. This indicates that the subjective probabilities induced by optimal expectations are incompatible with experimentally observed results under the rank dependent probability assumption. (C) 2009 Elsevier Inc. All rights reserved.

This note gives a stochastic dominance representation of more optimistic belief in rank dependent expected utility. Applying this observation, we can demonstrate the effect of more optimistic belief on economic decisions and equilibria under risk making comparative static analysis. (c) 2008 Elsevier B.V. All rights reserved.

For single-period complete financial asset markets with representative investors, we introduce a bull market measure for uncertain state occurrence and its associated ordering between representative investors in markets based on their marginal rate of substitution between equilibrium consumption allocations among possible states. These concepts combine and generalize the likelihood-ratio-dominance relation between probability prospects of state occurrence and the Arrow-Pratt ordering of risk aversion in expected utility settings. By analyzing the comparative statics for bull market effects on equilibrium asset prices, we derive some monotone properties of the risk-free rate and discounted prices of dividend-monotone assets. (c) 2004 Elsevier B.V. All rights reserved.