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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 187-209 |
| Number of pages | 23 |
| Journal | Theory and Decision |
| Volume | 80 |
| Issue number | 2 |
| DOIs | |
| State | Published - Feb 1 2016 |
Keywords
- Aggregate risks
- Risk and uncertainty
ASJC Scopus subject areas
- Decision Sciences(all)
- Developmental and Educational Psychology
- Arts and Humanities (miscellaneous)
- Applied Psychology
- Social Sciences(all)
- Economics, Econometrics and Finance(all)
- Computer Science Applications