Are Risk Preferences Stable? Schildberg-Hörisch, Hannah
The Journal of economic perspectives,
04/2018, Letnik:
32, Številka:
2
Journal Article
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It is ultimately an empirical question whether risk preferences are stable over time. The evidence comes from diverse strands of literature, covering the stability of risk preferences in panel data ...over shorter periods of time, life-cycle dynamics in risk preferences, the possibly long-lasting effects of exogenous shocks on risk preferences as well as temporary variations in risk preferences. Individual risk preferences appear to be persistent and moderately stable over time, but their degree of stability is too low to be reconciled with the assumption of perfect stability in neoclassical economic theory. We offer an alternative conceptual framework for preference stability that builds on research regarding the stability of personality traits in psychology. The definition of stability used in psychology implies high levels of rank-order stability across individuals and not that the individual will maintain the same level of a trait over time. Preference parameters are considered as distributions with a mean that is significantly but less than perfectly stable, plus some systematic variance. This framework accommodates evidence on systematic changes in risk preferences over the life cycle, due to exogenous shocks such as economic crises or natural catastrophes, and due to temporary changes in self-control resources, emotions, or stress. We note that research on the stability of (risk) preferences is conceptually at the heart of microeconomics and systematic changes in risk preferences have vital real-world consequences.
Bringing together the ideas of experts from around the world, this incisive text offers cutting-edge perspectives on the risk analysis and governance of genetically modified organisms (GMOs), ...supporting effective and informed decision-making in developing countries. Comprised of four comprehensive sections, this book covers: integrated risk analysis and decision making, giving an overview of the science involved and examining risk analysis methods that impact decision-making on the release of GMOs, particularly in developing countries; diversification of expertise involved in risk analysis and practical ways in which the lack of expertise in developing countries can be overcome; risk analysis based regulatory systems and how they can be undermined by power relationships and socio-political interests, as well as strategies for improving GMO policy development and regulatory decision-making; and case studies from developing countries providing lessons based on real-world experience that can inform our current thinking.
• We change the definition of financial distress in CoVaR. • We consider more severe distress events, backtest CoVaR, and improve its consistency. • Our CoVaR and VaR have a weak relation in the ...cross-section and in the time-series. • Depository institutions contribute the most to systemic risk. • Leverage, size, and equity beta are important in explaining systemic risk.
We modify Adrian and Brunnermeier’s (2011) CoVaR, the VaR of the financial system conditional on an institution being in financial distress. We change the definition of financial distress from an institution being exactly at its VaR to being at most at its VaR. This change allows us to consider more severe distress events, to backtest CoVaR, and to improve its consistency (monotonicity) with respect to the dependence parameter. We define the systemic risk contribution of an institution as the change from its CoVaR in its benchmark state (defined as a one-standard deviation event) to its CoVaR under financial distress. We estimate the systemic risk contributions of four financial industry groups consisting of a large number of institutions for the sample period June 2000 to February 2008 and the 12months prior to the beginning of the crisis. We also investigate the link between institutions’ contributions to systemic risk and their characteristics.
Risk aversion—but also the higher-order risk preferences of prudence and temperance—are fundamental concepts in the study of economic decision making. We propose a method to jointly measure the ...intensity of risk aversion, prudence, and temperance. Our theoretical approach is to define risk compensations of different orders, and in an experiment we elicit these compensations with a price list technique. We find evidence for risk aversion, prudence, and temperance. These traits correlate within subjects. The compensations elicited for prudence are significantly larger than those for risk aversion and temperance. In contrast to commonly used utility functions, prospect theory can predict this behavioral pattern. In our experiment, risk-averse, risk-loving, and risk-neutral subjects are prudent. This supports a recent theoretical observation that prudence may be a more universal trait than previously realized.
Risk aversion (a second-order risk preference) is a time-proven concept in economic models of choice under risk. More recently, the higher order risk preferences of prudence (third-order) and ...temperance (fourth-order) also have been shown to be quite important. While a majority of the population seems to exhibit both risk aversion and these higher order risk preferences, a significant minority does not. We show how both risk-averse and risk-loving behaviors might be generated by a simple type of basic lottery preference for either (1) combining "good" outcomes with "bad" ones, or (2) combining "good with good" and "bad with bad," respectively. We further show that this dichotomy is fairly robust at explaining higher order risk attitudes in the laboratory. In addition to our own experimental evidence, we take a second look at the extant laboratory experiments that measure higher order risk preferences and we find a fair amount of support for this dichotomy. Our own experiment also is the first to look beyond fourth-order risk preferences, and we examine risk attitudes at even higher orders.
Recent studies showed that climate change and socioeconomic trends are expected to increase flood risks in many regions. However, in these studies, human behavior is commonly assumed to be constant, ...which neglects interaction and feedback loops between human and environmental systems. This neglect of human adaptation leads to a misrepresentation of flood risk. This article presents an agent‐based model that incorporates human decision making in flood risk analysis. In particular, household investments in loss‐reducing measures are examined under three economic decision models: (1) expected utility theory, which is the traditional economic model of rational agents; (2) prospect theory, which takes account of bounded rationality; and (3) a prospect theory model, which accounts for changing risk perceptions and social interactions through a process of Bayesian updating. We show that neglecting human behavior in flood risk assessment studies can result in a considerable misestimation of future flood risk, which is in our case study an overestimation of a factor two. Furthermore, we show how behavior models can support flood risk analysis under different behavioral assumptions, illustrating the need to include the dynamic adaptive human behavior of, for instance, households, insurers, and governments. The method presented here provides a solid basis for exploring human behavior and the resulting flood risk with respect to low‐probability/high‐impact risks.
The measles outbreak at Disneyland in December 2014 spread to a half-dozen U.S. states and sickened 147 people. It is just one recent incident that the medical community blames on the nation's ...falling vaccination rates. Still, many parents continue to claim that the risks that vaccines pose to their children are far greater than their benefits. Given the research and the unanimity of opinion within the medical community, many ask how such parents-who are most likely to be white, college educated, and with a family income over $75,000-could hold such beliefs.
For over a decade, Jennifer Reich has been studying the phenomenon of vaccine refusal from the perspectives of parents who distrust vaccines and the corporations that make them, as well as the health care providers and policy makers who see them as essential to ensuring community health. Reich reveals how parents who opt out of vaccinations see their decision: what they fear, what they hope to control, and what they believe is in their child's best interest. Based on interviews with parents who fully reject vaccines as well as those who believe in "slow vax," or altering the number of and time between vaccinations, the author provides a fascinating account of these parents' points of view.
Placing these stories in dialogue with those of pediatricians who see the devastation that can be caused by vaccine-preventable diseases and the policy makers who aim to create healthy communities,Calling the Shotsoffers a unique opportunity to understand the points of disagreement on what is best for children, communities, and public health, and the ways in which we can bridge these differences.
Bridging an identified gap between research and practice in the domain of risk and organizational learning with respect to human/organizational factors and organizational behaviour, this book ...highlights the common and recurring threads in contributory factors to accident causation. Based on an extensive research project, it investigates how shipping companies as organizations learn from, filter and give credence/acceptability to differing risk perceptions and how this influences the work culture with special regard to group/team dynamics and individual motivation. The work is presented in the context of the literature regarding conceptual links between risk and the theoretical and operational themes of organizational learning, and in light of interviewees' comments. The themes include processes and structures of knowledge acquisition, information interpretation and distribution, organizational memory and change/adaptation and also levels of learning. The book concludes by discussing some practical implications of the research carried out in various maritime contexts and gives recommendations for the industry and other stakeholders.
Climate change has been identified as the biggest global health threat of the twenty-first century. Hundreds of millions of people around the world currently suffer from allergic diseases such as ...asthma and allergic rhinitis (hay fever), and the prevalence of these diseases is increasing. This book is the first authoritative and comprehensive assessment of the many impacts of climate change on allergens, such as pollen and mould spores, and allergic diseases. The international authorship team of leaders in this field explore the topic to a breadth and depth far beyond any previous work. This book will be of value to anyone with an interest in climate change, environmental allergens, and related allergic diseases. It is written at a level that is accessible for those working in related physical, biological, and health and medical sciences, including researchers, academics, clinicians, and advanced students.
Understanding the health consequences associated with exposure to risk factors is necessary to inform public health policy and practice. To systematically quantify the contributions of risk factor ...exposures to specific health outcomes, the Global Burden of Diseases, Injuries, and Risk Factors Study (GBD) 2021 aims to provide comprehensive estimates of exposure levels, relative health risks, and attributable burden of disease for 88 risk factors in 204 countries and territories and 811 subnational locations, from 1990 to 2021.
The GBD 2021 risk factor analysis used data from 54 561 total distinct sources to produce epidemiological estimates for 88 risk factors and their associated health outcomes for a total of 631 risk–outcome pairs. Pairs were included on the basis of data-driven determination of a risk–outcome association. Age-sex-location-year-specific estimates were generated at global, regional, and national levels. Our approach followed the comparative risk assessment framework predicated on a causal web of hierarchically organised, potentially combinative, modifiable risks. Relative risks (RRs) of a given outcome occurring as a function of risk factor exposure were estimated separately for each risk–outcome pair, and summary exposure values (SEVs), representing risk-weighted exposure prevalence, and theoretical minimum risk exposure levels (TMRELs) were estimated for each risk factor. These estimates were used to calculate the population attributable fraction (PAF; ie, the proportional change in health risk that would occur if exposure to a risk factor were reduced to the TMREL). The product of PAFs and disease burden associated with a given outcome, measured in disability-adjusted life-years (DALYs), yielded measures of attributable burden (ie, the proportion of total disease burden attributable to a particular risk factor or combination of risk factors). Adjustments for mediation were applied to account for relationships involving risk factors that act indirectly on outcomes via intermediate risks. Attributable burden estimates were stratified by Socio-demographic Index (SDI) quintile and presented as counts, age-standardised rates, and rankings. To complement estimates of RR and attributable burden, newly developed burden of proof risk function (BPRF) methods were applied to yield supplementary, conservative interpretations of risk–outcome associations based on the consistency of underlying evidence, accounting for unexplained heterogeneity between input data from different studies. Estimates reported represent the mean value across 500 draws from the estimate's distribution, with 95% uncertainty intervals (UIs) calculated as the 2·5th and 97·5th percentile values across the draws.
Among the specific risk factors analysed for this study, particulate matter air pollution was the leading contributor to the global disease burden in 2021, contributing 8·0% (95% UI 6·7–9·4) of total DALYs, followed by high systolic blood pressure (SBP; 7·8% 6·4–9·2), smoking (5·7% 4·7–6·8), low birthweight and short gestation (5·6% 4·8–6·3), and high fasting plasma glucose (FPG; 5·4% 4·8–6·0). For younger demographics (ie, those aged 0–4 years and 5–14 years), risks such as low birthweight and short gestation and unsafe water, sanitation, and handwashing (WaSH) were among the leading risk factors, while for older age groups, metabolic risks such as high SBP, high body-mass index (BMI), high FPG, and high LDL cholesterol had a greater impact. From 2000 to 2021, there was an observable shift in global health challenges, marked by a decline in the number of all-age DALYs broadly attributable to behavioural risks (decrease of 20·7% 13·9–27·7) and environmental and occupational risks (decrease of 22·0% 15·5–28·8), coupled with a 49·4% (42·3–56·9) increase in DALYs attributable to metabolic risks, all reflecting ageing populations and changing lifestyles on a global scale. Age-standardised global DALY rates attributable to high BMI and high FPG rose considerably (15·7% 9·9–21·7 for high BMI and 7·9% 3·3–12·9 for high FPG) over this period, with exposure to these risks increasing annually at rates of 1·8% (1·6–1·9) for high BMI and 1·3% (1·1–1·5) for high FPG. By contrast, the global risk-attributable burden and exposure to many other risk factors declined, notably for risks such as child growth failure and unsafe water source, with age-standardised attributable DALYs decreasing by 71·5% (64·4–78·8) for child growth failure and 66·3% (60·2–72·0) for unsafe water source. We separated risk factors into three groups according to trajectory over time: those with a decreasing attributable burden, due largely to declining risk exposure (eg, diet high in trans-fat and household air pollution) but also to proportionally smaller child and youth populations (eg, child and maternal malnutrition); those for which the burden increased moderately in spite of declining risk exposure, due largely to population ageing (eg, smoking); and those for which the burden increased considerably due to both increasing risk exposure and population ageing (eg, ambient particulate matter air pollution, high BMI, high FPG, and high SBP).
Substantial progress has been made in reducing the global disease burden attributable to a range of risk factors, particularly those related to maternal and child health, WaSH, and household air pollution. Maintaining efforts to minimise the impact of these risk factors, especially in low SDI locations, is necessary to sustain progress. Successes in moderating the smoking-related burden by reducing risk exposure highlight the need to advance policies that reduce exposure to other leading risk factors such as ambient particulate matter air pollution and high SBP. Troubling increases in high FPG, high BMI, and other risk factors related to obesity and metabolic syndrome indicate an urgent need to identify and implement interventions.
Bill & Melinda Gates Foundation.
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