Aversion Index Research Articles

The Computer Aversion, Attitudes, and Familiarity Index (CAAFI): A validity study

This study’s purpose was to provide additional psychometric data on the Computer Aversion, Attitudes, and Familiarity Index (CAAFI). The CAAFI is comprised of 40 items, yielding a total score and four factor scores with 10 items each (one familiarity, one attitudes, two aversion). The measure was administered to a sample of undergraduate psychology students ( N = 293) along with the Computer Understanding and Experience Scale, the Computer Attitude Scale, and the Computer Aversion Scale. The factor structure of the CAAFI was supported via confirmatory factor analytic procedures and analysis of internal consistency reliability coefficients. In relation to the other measures of computer-related constructs, the strongest validity support was found for the CAAFI total score and Factors 1 (computer familiarity) and 3 (computer aversion-discomfort), followed by Factor 2 (computer attitudes). With regard to Factor 4 (computer aversion-fear), given the results of the analyses the decision was made to remove these items from the CAAFI in order to enhance the measure’s psychometric properties and practical utility.

Statistical estimate of the proportional hazard premium of loss

The well known Proportional Hazard Premium Principle, introduced by Wang (1996), depends upon the survival function of the insured risk and a risk aversion index. Using this premium principle, we propose an asymptotically normal semi-parametric estimator for the net-premium of a high-excess loss layer of heavy-tailed claim amounts. An algorithm to compute confidence bounds is given. Moreover, a comparison between this estimator and the non-parametric estimator, proposed by Necir & Boukhetala (2004), is carried out.

Optimal Asset Allocation Based on Utility Maximization in the Presence of Market Frictions

We develop a model of optimal asset allocation based on a utility framework. This applies to a more general context than the classical mean-variance paradigm since it can also account for the presence of constraints in the portfolio composition. Using this approach, we study the distribution of a measure of wealth compensative variation, we propose a benchmark and portfolio efficiency test and a procedure to estimate the implicit risk aversion parameter of a power utility function. Our empirical analysis makes use of the S&P 500 and industry portfolios time series to show that although the market index cannot be considered an efficient investment in the mean-variance metric, the wealth loss associated with such an investment is statistically different from zero but rather small (lower than 0.5%). The wealth loss is at its minimum for a representative agent with a constant risk aversion index not higher than 5. Furthermore we show that, for reasonable levels of risk aversion, the use of an equally weighted portfolio is surprisingly consistent with an expected utility maximizing behavior.

Risk-aversion and the investment–uncertainty relationship: The role of capital depreciation

Some recent contributions [Nakamura, T., 1999. Risk-aversion and the uncertainty–investment relationship: a note. Journal of Economic Behavior and Organization 38, 357–363; Saltari, E., Ticchi, D., 2005. Risk-aversion and the investment–uncertainty relationship: a comment. Journal of Economic Behavior and Organization 56, 121–125] suggest that investments react negatively to uncertainty when the risk aversion index characterizing firm’s preferences is lower than one but higher than the labour income share of output. We show that this result crucially depends on the assumption of complete capital depreciation after production. When realistic values for the capital depreciation parameter are taken into account, the investment–uncertainty relation is negative for values of the risk-aversion index larger than unity.

Impact of investor’s varying risk aversion on the dynamics of asset price fluctuations

While investors’ responses to price changes and their price forecast have been identified as one of the major factors contributing to large price fluctuations in financial markets, our study shows that investors’ heterogeneous and dynamic risk aversion (DRA) preferences may play a more critical role in understanding the dynamics of asset price fluctuations. We allow an agent specific and time-dependent risk aversion index in a popular power utility function with constant relative risk aversion to construct our DRA model in which we made two key contributions. We developed an approximated closed-form price setting equation, providing a necessary framework for exploring the impact of various agents’ behaviors on the price dynamics. The dynamics of each agent’s risk aversion index is modeled by a bounded random walk with a constant variance, and such dynamics is incorporated in the price formula to form our DRA model. We show numerically that our model reproduces most of the “stylized” facts observed in the real data, suggesting that dynamic risk aversion is an important mechanism for understanding the dynamics of the financial market and the resultant financial time series.

Stochastic Dominance and Absolute Risk Aversion

In this paper, we propose the infimum of the Arrow–Pratt index of absolute risk aversion as a measure of global risk aversion of a utility function. We show that, for any given arbitrary pair of distributions, there exists a threshold level of global risk aversion such that all increasing concave utility functions with at least as much global risk aversion would rank the two distributions in the same way. Furthermore, this threshold level is sharp in the sense that, for any lower level of global risk aversion, we can find two utility functions in this class yielding opposite preference relations for the two distributions.

Stochastic Dominance and Absolute Risk Aversion

In this paper we propose the infimum of the Arrow-Pratt index of absolute risk aversion as a measure of global risk aversion of a utility function. We then show that, for any given arbitrary pair of distributions, there exists a threshold level of global risk aversion such that all increasing concave utility functions with at least as much global risk aversion would rank the two distributions in the same way. Furthermore, this threshold level is sharp in the sense that, for any lower level of global risk aversion, we can find two utility functions in this class yielding opposite preference relations for the two distributions.

The Computer Aversion, Attitudes, and Familiarity Index (CAAFI): A Measure for the Study of Computer-Related Constructs

The purpose of this study was to systematically develop an instrument to measure computer aversion, computer attitudes, and computer familiarity. The study is an extension of previous research (Schulenberg, 2002). Development involved item generation, pilot testing, and exploratory and confirmatory factor analyses. The measure was administered to psychology students drawn from two universities ( N = 854; N = 400, respectively). The three hypothesized factors emerged, as well as an additional computer aversion factor. The measure possesses good content validity and factorial validity, as well as solid internal consistency reliability. Implications of this study, considerations, and directions for future research are discussed.

Impact of Investor's Varying Risk Aversion on the Dynamics of Asset Price Fluctuations

While the investors' responses to price changes and their price forecasts are well accepted major factors contributing to large price fluctuations in financial markets, our study shows that investors' heterogeneous and dynamic risk aversion (DRA) preferences may play a more critical role in the dynamics of asset price fluctuations. We propose and study a model of an artificial stock market consisting of heterogeneous agents with DRA, and we find that DRA is the main driving force for excess price fluctuations and the associated volatility clustering. We employ a popular power utility function, $U(c,\gamma)=\frac{c^{1-\gamma}-1}{1-\gamma}$ with agent specific and time-dependent risk aversion index, $\gamma_i(t)$, and we derive an approximate formula for the demand function and aggregate price setting equation. The dynamics of each agent's risk aversion index, $\gamma_i(t)$ (i=1,2,...,N), is modeled by a bounded random walk with a constant variance $\delta^2$. We show numerically that our model reproduces most of the stylized facts observed in the real data, suggesting that dynamic risk aversion is a key mechanism for the emergence of these stylized facts.

Incorporating Foreign Equities in the Optimal Asset Allocation of an Insurer with the Consideration for Background Risks: Models and Numerical Illustrations

We analyzes the optimal asset allocation problem for life insurers that are required to cope with significant background risks originating from life insurance businesses among a set of stochastic investment opportunities including foreign equities. The insurer is assumed to maximize the expected discounted utility of its surplus over a time horizon, and the optimalization problem is formulated in a stochastic control framework. Our derivations show that the optimal portfolio can be characterized by three components: a risk-minimizing component, a risk aversion index coupled with the portfolio’s performance index, and the component reflecting the diffusions of state variables. Since the explicit solutions cannot be derived due to the complexity of the model, we employ Markov chain approximation methods to obtain the optimal control solutions numerically. The model and numerical methods are then applied to a hypothetical insurer in a simplified setting as an illustrative example.

An index of loss aversion

To a considerable extent, risk aversion as it is commonly observed is caused by loss aversion. Several indexes of loss aversion have been proposed in the literature. The one proposed in this paper leads to a clear decomposition of risk attitude into three distinct components: basic utility, probability weighting, and loss aversion. The index is independent of the unit of payment. The main theorem shows how the indexes of different decision makers can be compared through observed choices.

Activation of the mitogen-activated protein kinase/extracellular signal-regulated kinase signaling pathway leading to cyclic AMP response element-binding protein phosphorylation is required for the long-term facilitation process of aversive olfactory learning in young rats

The mitogen-activated protein kinase/extracellular-signal regulated kinase (MAPK/ERK) cascade is an important contributor to synaptic plasticity that underlies learning and memory. ERK activation by the MAPK/ERK kinase (MEK) leading to cyclic-AMP response element binding protein (CREB) phosphorylation is implicated in the formation of long-term memory. We have demonstrated that CREB phosphorylation in the olfactory bulb (OB) is important for aversive olfactory learning in young rats, yet whether MAPK/ERK functions as an upstream regulator are necessary for this olfactory learning remains to be determined. Therefore, we addressed this issue using behavioral and Western blot analyses. The MEK inhibitor PD98059 was continuously infused into the OB of postnatal day 11 rat pups during a 30-min training session regarding the pairing of citral odor and foot shock. On the following day, the time spent in the part of the apparatus where the odor was present was measured as an index of odor aversion. PD98059 impaired olfactory learning in a dose-dependent manner without affecting memory retention 1 h after training. We further tested whether odor-shock training leads to MAPK/ERK activation in the OB and defines the time course of the activation. Phosphorylated ERKs (P-ERKs) 1 and 2 were significantly increased for 60 min after the training without changes in total ERKs 1 and 2. By contrast, intrabulbar infusion of PD98059 during the training significantly reduced P-ERKs 1 and 2 as well as phosphorylated CREB without any effects on the total ERKs or CREB. Taken together with the previous findings, these results indicate that the MAPK/ERK–CREB pathway is required for the long-term, but not the short-term, facilitation process of aversive olfactory learning in young rats.

Greater Downside Risk Aversion

Although investors are concerned foremost with mean and variance, they are also sensitive to downside risk. In this paper, we introduce an index of downside risk aversion to distinguish risk aversion from higher-order aspects of risk preference, including prudence. We show that the index of downside risk aversion S increases with monotonic downside risk averse transformations of utility, thereby directly linking S to the definition of downside risk aversion introduced by Menezes et al. (American Economic Review, 70, 921–932, 1980). Although the index S applies equally to risk averse and risk loving decision makers, for a given positive degree of risk aversion, S is greater when the index of prudence is greater and vice versa.

An economic premium principle in a multiperiod economy

This paper considers a multiperiod economic equilibrium model for deriving the economic premium principle of Bühlmann [Astin Bull. 11 (1980) 52–60; Astin Bull. 14 (1983) 13–21]. To do this, we construct a consumption/portfolio model in which each agent is characterized by his/her utility function and income and seeks to invest his/her wealth in both insurance as well as a financial market so as to maximize the expected, discounted total utility from consumption. The state price density in equilibrium is obtained in terms of the Arrow–Pratt index of absolute risk aversion for the representative agent. As special cases, power and exponential utility functions are examined, and some comparative statics results are derived.

Facilitatory effect of ritanserin is mediated by dopamine D1 receptors on olfactory learning in young rats

The olfactory bulb is critically involved in early olfactory learning. In this study, we examined the effect of intrabulbar infusion of ritanserin, a 5-hydroxytryptamine(2) (5-HT(2)) receptor antagonist on a one-trial aversive olfactory learning in young rats. Ritanserin, a 5-HT(2) receptor antagonist, was continuously infused into the olfactory bulb of postnatal day-11 (PND 11) rat pups during a 30-min training session of pairing citral odor and foot shock. On the following day, the time spent in the part of the apparatus where the odor was present was measured as an index of odor aversion. Consistent with a previous study on olfactory preference learning, 1 nM ritanserin, but not 10 nM, blocked the olfactory aversive learning. We further examined the ability of 10 nM ritanserin to induce olfactory learning in the absence of the unconditioned stimulus foot shock. Pups that received intrabulbar infusion of 10 nM ritanserin in the presence of citral odor developed an aversion to the odor without foot shock. Since ritanserin has been shown to have an affinity for dopamine receptors, we examined the effect of dopamine antagonists on the ritanserin-induced aversive olfactory learning. Co-infusion of the dopamine D(1) receptor antagonist (+/-)-SKF-83566 with ritanserin dose-dependently prevented induced learning. In contrast, the D(2) receptor antagonist spiperone was without effect. These results extend the previous finding on the role of bulbar 5-HT(2) receptors in early olfactory learning and suggest that high concentration of ritanserin facilitates aversive olfactory learning through D(1) receptors in the olfactory bulb.

Facilitatory effect of ritanserin is mediated by dopamine D1 receptors on olfactory learning in young rats

The olfactory bulb is critically involved in early olfactory learning. In this study, we examined the effect of intrabulbar infusion of ritanserin, a 5-hydroxytryptamine2 (5-HT2) receptor antagonist on a one-trial aversive olfactory learning in young rats. Ritanserin, a 5-HT2 receptor antagonist, was continuously infused into the olfactory bulb of postnatal day-11 (PND 11) rat pups during a 30-min training session of pairing citral odor and foot shock. On the following day, the time spent in the part of the apparatus where the odor was present was measured as an index of odor aversion. Consistent with a previous study on olfactory preference learning, 1 nM ritanserin, but not 10 nM, blocked the olfactory aversive learning. We further examined the ability of 10 nM ritanserin to induce olfactory learning in the absence of the unconditioned stimulus foot shock. Pups that received intrabulbar infusion of 10 nM ritanserin in the presence of citral odor developed an aversion to the odor without foot shock. Since ritanserin has been shown to have an affinity for dopamine receptors, we examined the effect of dopamine antagonists on the ritanserin-induced aversive olfactory learning. Co-infusion of the dopamine D1 receptor antagonist (±)-SKF-83566 with ritanserin dose-dependently prevented induced learning. In contrast, the D2 receptor antagonist spiperone was without effect. These results extend the previous finding on the role of bulbar 5-HT2 receptors in early olfactory learning and suggest that high concentration of ritanserin facilitates aversive olfactory learning through D1 receptors in the olfactory bulb. © 2000 John Wiley & Sons, Inc. Dev Psychobiol 37: 246–252, 2000

Complete monotonicity, background risk, and risk aversion

This paper analyzes how the statistical properties of a risk affect the attitude of individuals towards accepting another independent risk. We conduct the analysis for the class of increasing utility functions having all their derivatives with alternating sign. Such utilities can be expressed as mixtures of negative exponential functions and they are fully described by distribution functions over the set of exponents. Our analysis exploits the relationship between the distribution functions characterizing utilities and the distribution functions characterizing risks. In particular, we find sufficient conditions for an additional background risk to either reduce or increase the index of absolute risk aversion.

Stock returns and volatility: An empirical investigation of the German and French equity markets

This paper examines the relationship between stock returns and volatility in the German and French equity markets. Under the assumption of a conditional student t density function, the results indicate that stock returns in both countries may be described by the GARCH (1,1) model. The results also provide evidence that the 1987 stock market crash affected the mean-variance relationship in both countries, and the model's fit is significantly improved by explicitly taking the crash into account. Interestingly, the index of relative risk aversion is positive in both countries but is only significant in Germany when the stock market crash is incorporated into the analysis. The results also reveal that settlement delays significantly affect return in both countries and volatility in France. Furthermore accounting for structural shifts is important in ascertaining the relationship between stock returns and volatility.

Total risk aversion and the pricing of options

The objective of this paper is to derive the price of a call option in a “stable” market for amarket maker who is totally risk averse in the sense that he has a utility function with infinite index of absolute risk aversion. We prove that in the case when the borrowing rateR is the same as the lending rater the option price must be the Black—Scholes price with rateR = r. In the more interesting caseR > r, we prove that two option pricing functions are necessary and sufficient for making a market in the option. These two functions are the Black—choles prices with rater orR. Which price to use at each time will depend on the circumstances (buying or selling) and the capitalization of the market maker. We determine which price to use at each time and the optimal “riskless” portfolio.

Optimal pricing of the Portuguese telephone service

A first attempt is made at finding the optimal two-part tariff for Portugese telephone service. A theoretical model of consumer demand is presented and the two-part tariff which maximizes social welfare is derived. The model is then calibrated using Portugese data and previous econometric studies. The optimal long-run two-part tariff consists of an access charge that is close to twice the marginal cost of access and a usage charge 25% above the marginal cost of use. The level of the optimal two-part tariff depends mainly on the marginal cost of taxation and on an index of aversion to inequality. The structure of the optimal two-part tariff depends mainly on the ratio between the marginal consumer's usage level and the average usage level. Although the cost estimates are very tentative, the results suggest that the 1986 usage charge was greater than optimum. No similar conclusion can be drawn with respect to the acces charge.