Higher Risk Aversion Research Articles

An equilibrium model of the term structures of bonds and equities

We propose an equilibrium model of the term structures of bonds and equities, which has a similar descriptive ability to the reduced form model proposed by Lettau and Wachter (2011) (LW), and yet offers economic implications about preferences and consumption dynamics. The key is to let the parameters of recursive utility depend on state variables of the economy and replicate the stochastic discount factor specified by LW. We show that the model can explain the stylized facts about the various term structures, which, however, requires a high risk aversion, a high consumption volatility, or both. This tension can be alleviated by changing the parameters of the state-dependent preferences in our model.

How Hotel Brand Website Contributes to Online Hotel Reservation on Consumer Review Website?

While past research only attempted to investigate the impact of consumer review website characteristics on the hotel reservation behavior, this study incorporated both characteristics of hotel brand website and consumer review website into consideration. Impacts of the two types of websites on reservation behaviors in consumer review websites were examined. The moderating effects of consumer involvement and risk aversion factors were also considered. Three hundred and two respondents from the questionnaire survey were chosen from Bangkok metropolitan population aged 25-60, who experienced with online hotel reservations. The findings show that apart from the review website’s ease of use, information usefulness and price offered, brand website’s information usefulness also has positive impact on consumers’ decisions on the review website. However, brand website’s ease of use discourages the usage of the review website. High-risk aversion consumers tend to use the review websites, while high-involvement consumers pay less intention to the review websites’ information usefulness and are unlikely to use them. These findings will help managers effectively manage and design decision algorithm for their multi-channels of hotel e-commerce. The results explain dynamic, search sequence and interrelationship of current traveler’s behaviors. The source of their hotel search is both consumer review website and hotel brand website.

Bitcoin as a Safe-Haven Asset and a Medium of Exchange

A monetary model is established to introduce that bitcoin does have the characteristics of a price rise when the economic situation is terrible under high risk aversion. At this time, Bitcoin has the property of a safe-haven asset, and when economic conditions are good and risk aversion is low, Bitcoin has a pro-cyclical nature. At this time, Bitcoin has a stronger property as a medium of exchange. To show the movement law of the bitcoin price, we make a logarithmic linearization of the model and simulation, and the result is consistent with the theoretical analysis. To better understand the role of bitcoin in the real economy, several standard portfolio models are used to measure the similarities and differences between gold and bitcoin in an investment portfolio. After the outbreak of COVID-19, bitcoin has shown stronger safe-haven asset properties.

How do Founders’ Imprinting of Being Only-Children Impact Product Innovation in New Ventures?

The differences between only-children and children with siblings have been discussed for centuries and has captured the attention of the general public and researchers alike. However, limited knowledge is available about the imprinting effect only-children background has on individual’s strategic decision in business context. This study endeavors to fill this research gap by examining how founders’ background of being only-children impact product innovation in new ventures. By drawing on insight of imprinting theory, we theories that only-children founders have higher risk-aversion and less self-efficacy generating from interaction pattern with parents and the lack of peer competition in early family life, which contribute to lower motivation to pursue product innovation. We test our hypothesis using a sample of 422 Chinese new ventures. The empirical result support the negative relationship between founders’ only-children imprint, and product innovation. We also find that the negative relationship is strengthened when founders secure financial support from their families and is attenuated when they obtain strong faith in effort through experience outside family. From imprinting perspective, this study extends our understanding about the non-ignorable effect of early life family environment on individual’s strategic decision in business context and has implications for family science and entrepreneurship.

Industrial battery operation and utilization in the presence of electrical load uncertainty using Bayesian decision theory

Behind the meter battery storage is becoming increasing popular in all sectors, though enthusiasm has recently lagged in the industrial sector. Even though there may be many factors contributing to this including lack of innovation, prohibitive costs, and undesirable rate structures, a difficulty arises in accounting for uncertainty of electrical load in industrial facilities while still attempting to utilize battery storage as much as possible all while trying to achieve fiscal profitability. This study utilizes Gaussian process regression and Bayesian decision theory to organize load data and quantify electrical load uncertainty to properly and effectively discharge industrial battery storage. The study employs a simulation model to set battery load setpoints for the span of the utility billing period according to the degree of risk aversion. This combination of economic analysis according to utility billing period and utilization of degree of risk aversion to make decisions on the uncertainty of the data has not before been applied to battery storage. The method resulted in an annual average reduction of peak demand by 3.8 % at the lowest amount of savings and lowest risk aversion. The highest risk aversion resulted in an annual average reduction of peak demand of 7.5 %. The maximum reduction of peak load in any month was 13.8 % in the month of December with a relatively high risk aversion. With a the highest amount risk aversion tested, the model reduced demand ten of the twelve months of the year.

The role of aggregate risk aversion in the pricing of economic uncertainty

ABSTRACT We find that time-varying aggregate risk aversion is a vital state variable to the pricing of economic uncertainty documented by Bali et al. (2017). Economic uncertainty is priced only during periods with a high aggregate risk aversion level. Risk aversion-related component in economic uncertainty contributes the major proportion of uncertainty premium. This proportion fluctuates with real economy, whereas the remaining varies with market sentiment. Uncertainty premium is most prominent following periods simultaneously having high aggregate risk aversion and high economic uncertainty.

Supply Chain Pricing Models Considering Risk Attitudes under Free-Riding Behavior

The free-riding behavior of companies that do not act will bring losses to companies that provide services. A market consists of two secondary supply chains: manufacturers and retailers. Each supply chain can choose to adopt promotional strategies to expand its market demand. This paper constructs the centralized decision-making in the supply chain and the Nash game competition model between supply chains and primarily studies the impact of risk aversion and the free-riding coefficient on supply chain pricing, promotion strategy selection, and expected utility. We show that the supply chain with high-risk aversion has relatively low pricing, but the demand and a total expected utility are high. We also identify that, on the premise of the same risk aversion degree of the two supply chains, when the free-riding coefficient between the chains is small and equal, the supply chain tends to implement the promotion strategy. When consumers have the same preference for the products of two retailers, the pricing of the free-riding supply chain increases with the increase in the free-riding coefficient, while the supply chain with a promotion strategy is the opposite. Based on the numerical results, we further give the optimal one-way free-riding coefficient when the two supply chains have the same degree of risk aversion; when there is a bidirectional free-riding behavior in the market, competition among supply chains gradually tends to the first two scenarios.

Operational Strategies for Distributing Durable Goods in the Base of the Pyramid

Problem definition: Novel life-improving products, such as solar lanterns and energy-efficient cookstoves address essential needs of consumers in the base of the pyramid (BOP). However, their profitable distribution is often difficult because BOP customers are risk-averse, their ability to pay (ATP) is lower than their willingness to pay, and they face uncertainty regarding these products’ value. Academic/practical relevance: We examine two practical strategies from distributors in the BOP: (1) improving the product’s affordability through a discount and (2) increasing awareness of the product’s value. Our results identify BOP-specific operational trade-offs in implementing these strategies. We also propose strategies to manage these trade-offs that can increase consumer surplus in the BOP. Methodology: We introduce a supply chain model for the BOP and analyze the distributor’s pricing problem with refunds as well as the distributor’s optimal budget allocation between strategies (1) and (2). Results: We find that, in the BOP, the distributor’s profit-maximizing budget allocation often yields the lowest consumer surplus. This misalignment between profits and consumer surplus disappears if customers’ ATP is high. Moreover, the misalignment can be resolved if the distributor offers free product returns and commits to a maximum retail price. We confirm the robustness of our results through numerical simulations. Managerial implications: Best operations strategy practices in the BOP can differ significantly from developed markets. Furthermore, BOP customers’ limited ATP and high risk aversion generate a BOP-specific misalignment between profits and consumer surplus. Operational commitments, such as free returns, reduce this misalignment and can serve as a signal to investors of a social enterprise’s focus on consumer surplus.

How Effective Are Social Media Influencers Recommendations The Effect of Message Source on Purchasing Intention and e-Word of Mouth (WOM) from a Para-Social Interaction Perspective

Purpose –The aim of this study was to eplainhow the source credibility, attitude homophily, interactivity, and para-social interaction are related and affect the attitude toward the post. Following this, the effect of this attitude on buying and e-WOM intention and the moderating role of risk aversion levels in this relationship also has been investigated. Design/methodology/approach –Data were collected from 570 followers of an influencer who mainly share content related to experience products on Instagram. The research model was tested with SEM and multi group comparison analysis using AMOS. Findings –This study revealed that para-social interaction of consumers with influencers results in the generation of a positive attitude towards the recommendation post of the influencer. Also, once a positive attitude towards the post has been generated, it results in the generation of purchase intention and e-WOM engagement. Relationships examined in the context of experience products showed that attitude homophily and influencer's interactivity were the most influential among the antecedents (influencer's credibility, attitude homophily, interactivity) examined in the formation of para-social interaction. In the study, it was also determined that the risk aversion levels of consumers have a moderating effect on the attitude-purchase intention relationship, and even in the context of experience products that are perceived as inherently risky, consumers with low risk aversion tended to make purchases by considering the influencer's share.Discussion –Today, where influencer marketing is used extensively by businesses, it is possible for these activities to create the desired effect by choosing the right influencer. It is crucial to determine what is necessary to ensure that the followers buy the product and have positive word-of-mouth communication that are among the ultimate goals of the influencer's posts. For experience products where the purchasing decision is relatively risky, it can be said that for the success of influencer marketing, the influencer's expertise, the attitude homophily, and the willingness of the influencer to interact are essential at the point of establishing para-social interaction. In order to ensure that consumers with high risk aversion levels buy the product, it can be recommended to pay great attention to the content shared and provide helpful information that reflects the truth.

Short Communication: Utility Indifference Pricing with High Risk Aversion and Small Linear Price Impact

Short Communication: Utility Indifference Pricing with High Risk Aversion and Small Linear Price Impact

The Real Response to Uncertainty Shocks: The Risk Premium Channel

Uncertainty shocks are also risk premium shocks. With countercyclical risk aversion (RA), a positive shock to uncertainty increases risk and elevates RA as consumption growth falls. The combination of high RA and high uncertainty produces significant equity risk premia in bad times, which in turn, exacerbate the decline of macroeconomic aggregates and equity prices. Moreover, in the cross-section of equity returns, investors demand a risk premium for stocks that perform poorly in times of high uncertainty and elevated risk aversion. In a model with endogenously time-varying RA, uncertainty shocks lead to large falls in investment and equity prices that closely match state-dependent data responses. This paper was accepted by Tomasz Piskorski, finance. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4335 .

Psychological correlates of free colorectal cancer screening uptake in a Scottish sample: a cross-sectional observational study

ObjectivesColorectal cancer (CRC) screening uptake in Scotland is 56%. This study examined whether psychological factors were associated with CRC screening uptake.DesignCross-sectional observational study.SettingThis study used data from the Healthy AGeing...

Four-Way Evolutionary Game Analysis of Government Project Bidding Collusion in a State of Limited Rationality Based on Prospect Theory.

Controlling collusion in government bidding is a prerequisite for ensuring social justice and the smooth operation of projects. Based on the prospect theory, this article establishes a four-party evolutionary game model for tenderers, enterprises with higher willingness to collude, enterprises with lower willingness to collude, and supervising enterprises. The study uses replication dynamics to analyze the stability of strategy selection after the evolutionary game. The results show that higher project base returns increase the probability of collusion, while lower market competition, higher risk aversion, and stronger collusive regulation all reduce the probability of collusion. When regulators adopt a strong regulatory strategy, the remaining project participants tend to choose a noncollusive strategy.

Global financial conditions, capital flows and the exchange rate regime in emerging market economies

We examine if the sensitivity of private capital flows to global financial conditions varies across exchange rate regimes by focusing on 43 emerging market economies. We find that the flexible exchange rate regime stabilizes capital flows when the global risk aversion is low, particularly for gross liability flows; however, it fails to play such a role when the global risk aversion is high. We also show that larger covered interest parity deviations would amplify the impact of global risk aversion, which explains the failure of flexible exchange rate regimes during high global risk aversion periods.

Evaluation of disease alert systems for postbloom fruit drop of citrus in Florida and economic impact of adopting the Citrus Advisory System

Gama, A. B., Peres, N. A., Singerman, A., and Dewdney, M. M. 2021. Evaluation of disease alert systems for postbloom fruit drop of citrus in Florida and economic impact of adopting the Citrus Advisory System. Crop Protec. XX: xx-xx.Postbloom fruit drop of citrus (PFD) is caused by Colletotrichum abscissum in the Colletotrichum acutatum species complex. PFD does not occur annually but some growers tend to apply fungicides during flowering every year, wasting resources and negatively impacting the environment. Due to its sporadicity, the Fungicide Application Decision system (PFD-FAD) and the Citrus Advisory System (CAS) were developed in Florida and Brazil in 2001 and 2017, respectively, to aid in PFD management. Our objectives were to compare the recommendations from CAS and PFD-FAD, a weekly fungicide treatment schedule, and a nontreated control. We also aimed to assess the economic impact of adopting CAS over the other fungicide schedule treatments with low- and high-risk aversion profile scenarios. Weather conditions were not favorable to PFD in seven field trials. We performed one fungicide application based on CAS over four seasons. An average of approximately 2 and 3 fungicide applications per trial was performed based on PFD-FAD and the weekly treatments, respectively. Average cost to manage PFD following CAS, PFD-FAD, and the weekly treatments were, respectively, $17.52, $186.87, and $272.35. The reduction in management costs related to CAS also translates to reduced use of commercial fungicide formulations in small properties by 382 and 573 L compared to PFD-FAD and the weekly treatments, respectively. CAS recommendations greatly reduced production costs and fungicide usage without compromising disease control and citrus yield in years of low weather favorability for PFD in Florida.

Tuesday Blues and the day-of-the-week effect in stock returns

Abstract This study evaluates the impact of investor mood and mood contagion on the cross-section of Australian stock returns. While we document a day-of-the-week effect in Australia, there are noticeable differences to the US (Birru, 2018). Australian stock returns on Tuesday are significantly lower than other weekdays. This ‘Tuesday Blues’ effect is most prominent amongst speculative stocks which, being more difficult to value, are more likely to be influenced by investor mood. We further report that Australian speculative stock returns are more correlated with factors indicative of same-day domestic mood and lagged US mood. Exploiting the 14-hour difference in time zones, we find that Tuesday returns to Australian speculative stocks are lower following extremely negative Monday mood or high risk aversion in the US. Overall, our results are consistent with mood contagion across international markets, which contributes to the observed daily patterns in stock returns after recognizing differences in time zones.

Early health, risk aversion and stock market participation

To examine the relationship between early health status and financial decisions in adulthood, we link information on birth weight in 1966 from the Northern Finland Birth Cohort to data from the Finnish Central Securities Depository over the period of 1995–2010. We find that persons predisposed to poor health status in early childhood (indicated by low birth weight) avoid participating in the stock market in adulthood, with a 10% increase in birth weight associated with a 1.9% increase in probability of participation. The link between birth weight and stock market participation is partially channeled by poor early health status being associated with higher risk aversion. Early health status is not significantly related to risk taking in terms of the stock portfolio’s composition.

Risk averse policies foster bio-economic sustainability in mixed fisheries

This article examines the role of risk aversion on the sustainable management of mixed fisheries. We consider a bio-economic model of multiple species harvested by a single fleet with uncertain costs of effort. We assume that the regulatory agency aims at reaching MMEY (Multispecies Maximum Economic Yield) by maximizing the expected utility of total profits, where the utility function captures risk aversion. We show analytically that such a risk-averse MMEY mitigates the risk of biological and economic overexploitation of the different species and thus of biodiversity loss. However excessively high risk aversion also may also lessen food production at MMEY. Thus, risk aversion implies a trade-off between different bio-economic goals. These findings are illustrated with the case study of the Australian South East Fishery, where intermediate risk aversion levels allow for balanced bio-economic management objectives, therefore fostering sustainability.

Market shocks and professionals' investment behavior - Evidence from the COVID-19 crash.

We investigate how the experience of extreme events, such as the COVID-19 market crash, influence risk-taking behavior. To isolate changes in risk-taking from other factors, we ran controlled experiments with finance professionals in December 2019 and March 2020. We observe that their investments in the experiment were 12 percent lower in March 2020 than in December 2019, although their price expectations had not changed, and although they considered the experimental asset less risky during the crash than before. This lower perceived risk is likely due to adaptive normalization, as volatility during the shock is compared to volatility experienced in real markets (which was low in December 2019, but very high in March 2020). Lower investments during the crash can be supported by higher risk aversion, not by changes in beliefs.

Pesticide overuse in apple production and its socioeconomic determinants: Evidence from Shaanxi and Shandong provinces, China

Pesticides play a fundamental role in pest control and disease prevention during fruit production; however, growers have long faced accusations of excessive use, which can adversely affect food safety, the environment, and human health. Despite rising concern about pesticide overuse in fruit production, rigorous evidence on the extent to which farmers overuse pesticides in apple production and the underlying reasons for doing so is scant. Using data collected from 452 apple farms in Shaanxi and Shandong provinces in 2017, we employ the damage control Cobb–Douglas production function to estimate pesticide overuse in apple production. We also examine the determinants of pesticide overuse, with a focus on the impact of farmers’ attitudes toward risk. We find that 70.6% of apple farms engage in excessive pesticide use, with farmers that have higher risk aversion more likely to overuse pesticides. Orchard size and the age of apple trees also play important roles in determining the extent of pesticide application. Pesticide use in apple production could be reduced by implementing policies promoting crop insurance, enlarging land size, and regulating pesticide prices.