Choice under aggregate uncertainty

Nabil Al-Najjar () and Luciano Pomatto
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Nabil Al-Najjar: http://www.kellogg.northwestern.edu/faculty/alnajjar/htm/index.htm
Luciano Pomatto: http://www.kellogg.northwestern.edu/faculty/pomatto/index.htm

Theory and Decision, 2016, vol. 80, issue 2, 187-209

Abstract: We provide a simple model to measure the impact of aggregate risks. We consider agents whose rankings of lotteries over vectors of outcomes satisfy expected utility and separability. Such rankings are characterized in terms of aggregative utilities that measure sensitivity to aggregate uncertainty in a straightforward way. We consider applications to models of product variety, portfolio choice, and public attitudes towards catastrophic risks. The framework lends support to precautionary measures that penalize policies for exposure to correlation. The model rationalizes a number of behavioral and policy patterns as attempts to hedge against aggregate uncertainty. Copyright Springer Science+Business Media New York 2016

Keywords: Aggregate risks; Risk and uncertainty (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:theord:v:80:y:2016:i:2:p:187-209

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DOI: 10.1007/s11238-015-9504-1

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