Renewable energy investment and electricity procurement with ambiguity aversion under carbon emission trading and tradable green certificate policies

In this article, we explore the optimal portfolio selection problem for an individual who participates in mutual aid insurance and purchases life insurance under an environment where smooth ambiguity and habit formation coexist. The individual invests in a market with one risk-free and two risky assets whose unknown market prices result in ambiguity. Habit formation depends on historical consumption and is state-dependent. We construct a mathematical model for mutual aid insurance based on a three-state (good, bad, and death) process driven by an inhomogeneous Markov chain. Meanwhile, the individual hedges mortality risk via life insurance. We apply an extended Hamilton–Jacobi–Bellman equation with regime switching to solve for the equilibrium strategies that maximize the individual’s lifetime utility. Subsequently, we analyze three combinations of utility and ambiguity preference functions, power–power, exponential–power, and exponential–exponential, and obtain equilibrium strategies under different functional forms. A key finding shows that the Tobin–Markowitz separation theorem is no longer applicable when ambiguity aversion is considered. Finally, we conduct numerical simulations to demonstrate the significance of mutual aid insurance, measure parametric impacts on equilibrium strategies, and provide theoretical guidance for mutual aid product design.

This paper investigates the robust optimal investment for an ambiguity averse member of a defined contribution (DC) pension plan in a fully-fledged, time consistent mean-variance modeling framework. In particular, the paper extends the literature on defined contribution pension plans in three directions: (1) We relax its assumption of purely continuous stock and/or contribution processes, which allows to introduce the effects of news, job loss, macroeconomic conditions, etc., into the model; (2) Unlike most studies in DC pension plans, we allow for ambiguity about both the mean arrival rate and jump size distribution of the stock returns and contribution rate processes of the member; (3) Ambiguity in our setting is time-varying. The model thus features stochastic stock volatility, stochastic interest rate, stochastic contribution rate, jumps in both stock and contribution rate processes, and time-varying ambiguity about diffusion parameters. Welfare analysis indicates that ignoring ambiguity can be very costly to the member. The framework proposed in this paper is general and adds significant realism to existing models in the literature.

Senders of messages prefer to communicate uncertainty verbally (e.g. something is likely to happen) rather than numerically (such as 75%), leaving receivers with imprecise information. While it is well established that receivers translate verbal probabilities into numerical values that systematically deviate from the intended numerical meaning, it is less clear how this discrepancy influences subsequent behavioral actions. Thus, the role of verbal versus numerical communication of uncertainty warrants additional attention, to investigate two critical questions: (1) whether differences in decision-making under uncertainty arise between these communication forms, and (2) whether such differences persist even when verbal phrases are translated accurately into the intended numerical meaning. By implementing a laboratory experiment, we show that individuals place significantly lower values on uncertain options with medium to high likelihoods when uncertainty is communicated verbally rather than numerically. This effect may lead to less rational decisions under verbal communication, particularly at high likelihoods. Those results remain consistent even if individuals translate verbal uncertainty correctly into the intended numerical uncertainty, implying that a biased behavioral response is induced by the communication form. Ambiguity about the exact meaning of a verbal phrase interferes with decision-making even beyond potential mistranslations. These findings tie in with previous research on ambiguity aversion, which has predominantly operationalized ambiguity through numerical ranges rather than verbal phrases. Based on our findings we conclude that managers should communicate uncertainty numerically, as verbal communication can unintentionally influence the decision-making process of employees.

This study explores the investment-proportional reinsurance control policies within a Stackelberg game framework, with the preferences based on the α -maxmin mean-variance criterion. In our model, two competing insurers act as followers, and their competitive relationship is governed by a non-zero-sum game. The two insurers can mitigate their risk exposure by purchasing proportional reinsurance. Serving as the leader, the reinsurer modifies the reinsurance premium based on the insurer’s response strategy. Both the reinsurer and the two insurers are permitted to allocate their wealth between a risky asset, governed by geometric Brownian motion, and a risk-free asset, and they exhibit a preference for avoiding ambiguity. Unlike the prevalent assumption in the literature that the insurer or reinsurer exhibits extreme ambiguity aversion, this study accommodates a spectrum of ambiguity aversion levels among all parties involved. Each insurer aims to enhance its α -maxmin mean-variance utility of terminal relative performance, whereas the reinsurer aims to maximize the α -maxmin mean-variance utility of its terminal wealth. The equilibrium reinsurance premium, retention levels, and investment strategies, along with their corresponding equilibrium value functions, are derived by solving the extended Hamilton-Jacobi-Bellman (HJB) equations. Moreover, we also provide some numerical examples to illustrate our findings.

Decision-making under uncertainty often occurs with incomplete information and limited time for response. Prior work has highlighted two influential determinants driving choice under uncertainty: ambiguity aversion and time pressure effects. However, experimental designs are frequently confounded with perceptual difficulty, making it unclear whether observed preferences reflect true decisional bias or limitations in sensory encoding. In this study, we tested whether time pressure changes ambiguity preferences when perceptual clarity is controlled. In this within-subjects design, six undergraduate participants completed a decision task in which they chose between known probabilities and ambiguous lotteries displayed as calibrated visual grids. Ambiguity was manipulated by masking probability information while pressure varied using short and long response deadlines. A perceptual calibration procedure ensured that probability information was equally interpretable across conditions. Results showed a slight preference for ambiguous options under matched sensory conditions. Increased ambiguity shifted choices modestly towards the known option. Time pressure reduced reaction times and increased missed responses but did not amplify ambiguity aversion. These preliminary results suggest that ambiguity and time pressure may influence decision-making through distinct contributions. Increasing the sample size and extending to other sensory modalities may further clarify how uncertainty and urgency jointly shape perceptual and decisional processes under uncertain conditions.

Exploring older adults\u2019 tolerance of uncertainty in colorectal cancer screening decisions

ABSTRACT In this paper, we investigate the robust optimal investment and reinsurance strategy with exchange rate risk for insurance companies under ambiguity aversion and exponential utility. We consider the situation where the insurers, who are ambiguity-averse, can invest in both domestic and foreign markets. Under the expected value premium principle and variance premium principle, we first establish the corresponding Hamilton-Jacobi-Bellman (HJB) equation with the help of dynamic programming principle. Then the closed-form solutions of optimal strategies and value function for both ambiguity-averse and ambiguity-neutral scenarios are obtained by solving the HJB equation. In addition, some special cases of our model are provided. Finally, numerical simulations are conducted to further compare the robust strategies under two premium principles.

This paper studies the strategic interaction between shareholders and managers in an insurance company under model uncertainty using a two-player non-cooperative differential game. The firm’s surplus serves as the state variable, with the shareholder choosing dividend and capital-injection policies to maximise the expected discounted value of dividends net of financing costs, while the manager independently selects an excess-of-loss reinsurance strategy to maximise expected utility. To capture heterogeneous ambiguity attitudes, we examine three scenarios: (i) a benchmark case in which both parties fully trust the reference model; (ii) a setting where only the shareholder is ambiguity-averse; and (iii) a case where both agents face model uncertainty, potentially with different beliefs about surplus dynamics. The analysis characterises robust Nash equilibria across these settings and highlights how ambiguity aversion influences risk retention, dividend distribution, and capital support. Numerical results reveal nonlinear and asymmetric effects of managerial risk aversion and capital-injection costs, offering new insights into the role of heterogeneous beliefs in corporate governance and insurance risk management.

ABSTRACT This study aims mainly at addressing the gap in empirical finance literature concerning the role of ambiguity aversion degree and systematic ambiguity in the dynamics of voluntary information disclosure. In so doing, we have selected a group of firms listed on the Tehran Stock Exchange, during the period spanning from 2012 to 2022. The prevalence of numerous uncertainties at both the micro and macro levels within the Iranian economy during the aforementioned period have motivated us to focus on the Iranian economy. In general, our findings indicate persistence in voluntary information disclosure policies. We further provide evidence that in response to changes in risk and ambiguity variables, managers strategically adjust the disclosure levels of their hard, soft, and integrated information. Likewise, by segregating profitable firms from unprofitable ones we have investigated once again the factors determining the dynamics of voluntary disclosure. The results illustrate the robustness of our previous findings. However, contingent upon the profitability status of the firms, the control variables such as leverage, firm size, and stock liquidity have had diverse effects on the hard and soft information disclosure levels.

Testing axiomatizations of ambiguity aversion

Abstract We report the results of two experiments designed to better understand the mechanisms driving decision making under ambiguity. We elicit individual preferences over different sources of uncertainty, entailing different degrees of complexity, from subjects with different sophistication levels. We show that (1) ambiguity aversion is robust to sophistication, but the strong relationship previously reported between attitudes toward ambiguity and compound risk is not and (2) Ellsberg ambiguity attitude can be partly explained by attitudes toward complexity for less sophisticated subjects only. Overall, regardless of the subject’s sophistication level, the main driver of Ellsberg ambiguity attitude is a specific treatment of unknown probabilities.

ABSTRACT Ambiguity can elicit ambiguity aversion, or avoidance behavior, which is theoretically expected to occur because of a pessimistic interpretation of information (e.g. about risk) and from low perceived personal competence. Emotion may also play a role in how people respond to ambiguity, although little research has examined the role of emotion. The purpose of this research is to examine support for theoretical frameworks of ambiguity aversion and the role of emotion in responses to ambiguity. To do so, we tested (1) whether risk perceptions, perceived competence, and self-efficacy mediated the relationship between ambiguity and behavioral avoidance, and (2) whether fear and anger mediated the relationship between ambiguity and risk perceptions. Three online experiments were conducted across three health contexts – COVID-19, antibiotic regimens, and e-cigarettes. Across experiments, participants were randomly assigned to read an ambiguous or unambiguous health message relevant to the health context. Next, participants completed a survey of measures relevant to study aims. Based on the results of mediation analyses, one significant pattern of results emerged across two of three experiments: ambiguity led to lower behavioral intentions, consistent with behavioral avoidance. However, there was no consistent pattern of results across all three experiments to support the competence hypothesis or pessimistic appraisal as an explanation for this behavioral avoidance. In Experiment 2 only, there was some support for the competence hypothesis, but there was no support across any of the three experiments for pessimistic appraisal. As for the role of emotion in responses to ambiguity, anger (in Experiments 2 and 3) and fear (in Experiment 3) mediated the relationship between ambiguity and risk perception (i.e. perceived susceptibility and worry), but the direction of these effects was inconsistent with hypotheses. Overall, the results of the present research demonstrate that ambiguity can lead to behavioral avoidance, although the mechanisms remain unclear. Motivated reasoning may provide one explanation for the pattern of results. Findings have implications for health behavior interventions when ambiguity is experienced.

Default options have increasingly become a common tool for policymakers in guiding individuals’ behaviors. However, the neural mechanisms of default effects on decision-making, particularly in uncertain situations, remain unclear. In the present study, participants were asked to decide whether to stick with the default options in a gambling task, and their scalp potentials were recorded. The behavioral results indicated that the default effects did exist, given that participants demonstrated a significantly higher likelihood of selecting uncertain payoffs when these were presented as default options, as opposed to when certain payoffs were designated as defaults. The electroencephalography (EEG) data revealed that the assessment of default setting, comparing default uncertain options with default certain options, was reflected not only in early ERP components (such as P200 and MFN) but also in increased activity within the theta frequency band. Certain payoffs elicited larger P200 and MFN amplitudes compared to uncertain payoffs under default settings, and time-frequency analysis revealed greater theta power when the default options involved payoffs (rather than uncertain payoffs). Additionally, ambiguity aversion manifested not only in behavioral tendencies but also in distinct neural signatures, reflected across multiple ERP components associated with early evaluation (such as P200, MFN) and later motivational processing (such as P300, LPP). To further capture how these neural responses relate to behavior, we applied representational similarity analysis (RSA), which revealed that choice patterns were systematically associated with frontal neural activity during an early evaluative stage. Moreover, regression analyses indicated that later-stage neural responses, particularly the LPP, were predictive of individuals’ subsequent uncertainty choices, suggesting that both early evaluation processes and later motivational evaluations contribute to shaping behavior under uncertainty and defaults.

BackgroundTuberculosis disproportionately affects vulnerable groups due to low health awareness and suboptimal care-seeking behaviour. Individualised person-centric approaches are scarce in India’s national TB program. This study assessed the usefulness of behaviour change solutions (BCS) in improving TB case identification and treatment adherence among mining/industrial workers, migrants, tea-garden workers, tribals, and urban vulnerable.MethodsIn this qualitative study we conducted 147 in-depth interviews (IDI) with adult (78 men, 69 women) BCS beneficiaries, facilitators (auto drivers, community leaders) and healthcare providers between May–August, 2023 in Karnataka, Telangana, Assam, and Bihar. We explored the usefulness of four BCSs — health auto (addressing decision fatigue and healthcare costs), jaanch coupon (addressing the loss aversion bias), TB starter-kit (reducing ambiguity aversion), and TB mukt certificate (reinforcing positive perceptions), through user experience. Interviews were conducted in local language (Kannada, Telugu, Hindi and Assamese), audio recorded, transcribed, and analysed using a deductive approach. A thematic analysis was done, focusing on participants’ knowledge of the solutions, their experiences using them, perceived benefits and challenges, and recommendations for improvement. Thematic saturation was reached through a process of collaborative analysis, where the research team iteratively reviewed and discussed emerging patterns. The study received ethics approval from the National Institute of Mental Health and Neurosciences (NIMHANS), Bangalore.ResultsThe initial codes were merged into major themes based on their similarity. Findings indicated that health auto and jaanch coupon enhanced TB related awareness at the community level, reduced diagnostic delay, and facilitated increased case finding. On the other hand, use of starter-kit and TB mukt certificate led to improved treatment adherence. BCSs also supported timely decision-making, promoted treatment adherence, and empowered persons with TB by fostering a sense of entitlement. Moreover, BCSs attempted to address multifaceted vulnerabilities: while case finding solutions were able to facilitate accessibility and affordability by addressing physical barriers, the case holding solutions reduced stigma and improved community acceptance. However, the data also indicated that the solutions had challenges related to acceptability, and scalability.ConclusionsFindings from this study underscored that BCS catalysed TB healthcare seeking by addressing cognitive barriers. It suggests that designing targeted cognitive interventions could potentially be a promising approach to alter cognitive biases, inculcate behavioural changes, and improve TB care-seeking and treatment outcomes.Supplementary InformationThe online version contains supplementary material available at 10.1186/s12889-026-26542-x.

We derive the optimal investment portfolios of brown and green investors under the context of climate risk ambiguity aversion and calculate the equilibrium asset prices influenced by these portfolios, thereby uncovering the constraining mechanisms of capital allocation on firms’ carbon emission behaviours. The study shows that, under fixed quantities of risky assets, increasing levels of investors’ ambiguity aversion exhibit a nonlinear effect on firms’ greenhouse gas emissions, initially suppressing but later promoting them. Furthermore, as the proportion of green investors increases and their sensitivity to climate externalities strengthens, firms’ emissions significantly decrease. By utilising the annual Climate Physical Risk Index (CPRI) across multiple countries, the study comprehensively captures the impact of global climate risks on market assets. The findings indicate that green stocks are more susceptible to pronounced market shocks during tail risk events. Additionally, under policy constraints, firms facing higher environmental disclosure pressures receive further incentives to reduce carbon emissions.

In this paper, we address an optimal stochastic asset allocation and reinsurance problem in continuous-time contagious financial and insurance markets. The insurer is subject to contagious claims, which are modeled using an enhanced dynamic contagion process. This process generalizes the externally-exciting Cox process with shot noise and the self-exciting Hawkes process while also capturing the dependence structure between the financial and insurance markets. Furthermore, the insurer is assumed to be ambiguity-averse, with distinct modeling risk aversion preferences for the risky asset, extreme external events, and contagious insurance claims. The insurer aims to maximize the expected utility of the terminal surplus and a specified penalty function at a fixed terminal date under the worst-case scenario. Using the dynamic programing principle, we derive the extended Hamilton-Jacobi-Bellman (HJB) equation and develop an iterative numerical scheme to compute the value function and optimal controls. The convergence of the numerical method is rigorously proven. To support our quantitative analysis, we provide several numerical examples illustrating the impact of the dependence structure and ambiguity aversion on optimal controls.

Purpose This study aims to thoroughly examine consumer awareness of halal products by investigating the reservation price for halal products through a laboratory experiment in Indonesia. Design/methodology/approach The authors adopt the multiple price list method to elicit the reservation price and explore individual valuation to halal products using an incentivised economic experiment. The authors model the individual choice and estimate behavioural preferences (risk and ambiguity aversion), as well as estimating the determinants of the individual reservation price. Findings The participants exhibit a certain behavioural pattern in which non-halal products are valued higher than those of halal products based on price ratio (subjective valuation against product price). The additional benefits of the halal products do not appear to be perceived in a linear comparison with non-halal products. Research limitations/implications This study focuses on the demand side, using university members as participants under a within-design experiment, which may limit the scope of investigation. Future research could extend the analysis to the supply side to help understand the impact of halal certification through a randomised control trial design. Practical implications This raises an important issue of consumer trust in halal products, especially within Indonesian culture, where “being halal” should be officially recognised by the authorities. The government needs to understand its market to enhance the halal market. Originality/value This study investigates consumer’s reservation prices for halal products (both certified and self-claimed) compared to non-halal products using a laboratory economic experiment. The authors complement the existing literature – mostly focused on the supply side through survey methods – by examining the demand side of the halal industry.

With the continuous development of society, the global economy has shown an overall upward trend. Nevertheless, it is undeniable that various external shocks continue to impact international financial markets. Therefore, this study, from the perspective of behavioral finance, delves into global shocks, specifically natural disasters, geopolitical conflicts, and global health crises, to investigate how such shocks affect investor sentiment and stock market volatility. In behavioral finance, emotional reactions, psychological biases, and attention shifts can significantly influence market dynamics during periods of uncertainty. Drawing on relevant research concerning natural disasters, geopolitical conflicts, and public health crises, this paper finds that global shocks affect investor sentiment, thereby leading to non-fundamental asset demand and intensifying market volatility. The fear, loss aversion, and attention bias triggered by global shocks jointly drive market anomalies. Therefore, strengthening research on how investors' irrational emotional transmission channels affect the market is essential, as this study provides insights into market behavior during crises and holds significant implications for investors, policymakers, and regulators in stabilizing the market during such periods.

Abstract We study a robust optimal reinsurance and investment problem for an ambiguity-averse insurer, where decisions are influenced by past capital flows (delay). The insurer’s surplus is modelled via diffusion approximation, and the financial market comprises a risk-free asset and a risky asset following geometric Brownian motion. To capture ambiguity aversion toward both insurance and financial risks, we employ the alpha-max/min mean-variance criterion, which generalizes the classical mean-variance approach by weighting worst-case and best-case scenarios under model uncertainty. Incorporating a time-delay structure into the wealth dynamics leads to an infinite dimensional stochastic control problem. Using stochastic control theory for delay systems, we derive an extended Hamilton–Jacobi–Bellman equation and a verification theorem. Explicit, closed-form solutions for the robust optimal time-consistent reinsurance and investment strategies, along with the equilibrium value function, are obtained. Key findings include: (i) the equilibrium reinsurance strategy becomes more conservative as ambiguity aversion increases; (ii) the impact of ambiguity aversion of an individual on the investment strategy depends on the correlation between insurance and financial risks. When this dependence is weak, higher ambiguity aversion leads to a more conservative investment strategy. However, if the insurance market is highly ambiguous, a more ambiguity-averse insurer may surprisingly adopt a more aggressive investment strategy to diversify overall portfolio risk. Numerical analyses illustrate the effects of crucial parameters such as the ambiguity aversion coefficient, delay parameters and market coefficients of the optimal strategies, providing further economic interpretation and validation.