Valuing bets and hedges: Implications for the construct of risk preference

oleh: Shane Frederick, Amanda Levis, Steven Malliaris, Andrew Meyer

Format: Article
Diterbitkan: Cambridge University Press 2018-11-01

Deskripsi

Risk attitudes implied by valuations of risk-increasing assets depart markedly from those implied by valuations of risk-reducing assets. For instance, many are unwilling to pay the expected value for a risky asset or for its perfect hedge. Although nearly every theory of risk preference (and logic) demands a negative correlation between valuations of bets and hedges, we observe positive correlations. This inconsistency is difficult to expunge.