jumps and stochastic volatility in crude oil futures prices using conditional moments of integrated volatility we evaluate alternative models of the volatility of commodity futures prices based on high frequency intraday data from the crude oil futures markets for the october 2001 december 2012 period these models are implemented with a simple gmm estimator that matches sample moments of the realized volatility to the corresponding population moments of the integrated volatility models incorporating both stochastic volatility and jumps in the returns series are compared on the basis of the overall fit of the data over the full sample period and subsamples we also find that jumps in the returns series add to the accuracy of volatility forecasts

standard risk aversion this paper introduces the concept of standard risk aversion a von neumann morgenstern utility function has standard risk aversion if any risk makes a small reduction in wealth more painful in the sense of an increased reduction in expected utility also makes any undesirable independent risk more painful it is shown that given monotonicity and concavity the combination of decreasing absolute risk aversion and decreasing absolute prudence is necessary and sufficient for standard risk aversion standard risk aversion is shown to imply not only pratt and zeckhauser s proper risk aversion individually undesirable independent risks always being jointly undesirable but also that being forced to face an undesirable risk reduces the optimal investment in a risky security with and independent return similar results are established for the effect of broad class of increases in one risk on the desirability of or optimal investment in a second independent risk

alternative approaches to valuing intangible health losses the evidence for multiple sclerosis abstract this study uses both risk risk and risk dollar approaches to assess intangible health losses associated with multiple sclerosis ms using an estimation approach that adjusts for potential perceptional biases that may affect the expressed risk tradeoffs we estimated parameters of the utility function of persons with and without ms as well as the degree of subjects overestimation of the probability of obtaining ms the sample included subjects from the general population and persons with ms we found that marginal utility of income is lower in the state with ms than without it however the difference in marginal utility in the two states was greater for persons without ms than for those with the disease persons with ms overestimated the probability of acquiring ms to a greater extent than did persons within ms correcting for overestimation of this probability the value of intangible loss of a statistical case of ms derived from responses of the general population was us 350 000 to us 500 000 persons with ms were willing to pay somewhat more than this d80 i18 j17

time varying rare disaster risks oil returns and volatility abstract this paper provides a novel perspective to the predictive ability of rare disaster risks for west texas intermediate wti oil market returns and volatility using a nonparametric quantile based methodology over the monthly period of 1918 01 2013 12 we show that a nonlinear relationship and structural breaks exists between oil returns and various rare disaster risks hence linear granger causality tests are misspecified and the linear model results of non predictability are unreliable however the quantile causality test shows that rare disaster risks strongly affect both wti returns and volatility with stronger evidence of predictability observed at lower quantiles of the respective conditional distributions our results are robust to alternative specification of volatility based on a garch model and measure of rare disaster risks based on the number of crises

putting risk in its proper place this paper examines preferences toward particular classes of lottery pairs we show how such concepts as prudence and temperance can be fully characterized by a preference relation over these lotteries if preferences are defined in an expected utility framework with differentiable utility the direction of preference for a particular class of lottery pairs is equivalent to signing the nth derivative of the utility function what makes our characterization appealing is its simplicity which seems particularly amenable to experimentation

comorbidities and the willingness to pay for health improvements we show that the willingness to pay for health improvements increases with the severity and probability of occurrence of comorbidities this result which is obtained under mild restrictions on the shape of the utility function has important implications for cost benefit studies applied to health care in particular it implies that the discrimination of the elderly believed to be implicit in cost benefit analysis is less of a problem than commonly thought

consistency of higher order risk preferences 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

entitlements availability and famine a revisionist view of wollo 1972 1974 abstract this article reviews two stylized theories of famine causation food availability decline fad and food entitlement decline fed as competing explanations of the famine of 1972 1974 in wollo province ethiopia a sen s market entitlement failure argument is challenged by j seaman and j holt s price ripple hypothesis a consideration of the role of transactions costs and wealth inequalities suggests a synthesized approach wollo 1972 1974 was a fad supply slump famine for the relatively wealthy and an entitlements collapse demand slump famine for the absolutely poor

priority setting in health care and higher order degree change in risk this paper examines how priority setting in health care expenditures is influenced by the presence of uncertainty about the severity of the illness and the effectiveness of medical treatment we provide necessary and sufficient conditions on social preferences under which a social planner will allocate more health care resources to populations at higher risk changes in risk are defined by the concept of stochastic dominance up to order n the shape of the social utility function and an equity weighting function are used to model the inequality aversion of the social planner we show that for higher order risk changes the usual conditions on preferences such as prudence or relative risk aversion are not necessarily required to prioritise health care when there are different levels of uncertainty associated with otherwise similar patient groups

uncertainty and the demand for medical care abstract this paper provides an analysis of the effects of uncertainty on the demand for medical care using a simplified version of grossman s human capital model of the demand for health two types of uncertainty are analysed the uncertainty surrounding the incidence of illness and the uncertainty surrounding the effectiveness of medical care in the first the consumer s basic level of health is assumed to be a random variable in the second the effectiveness of medical care is assumed to be random comparative static results are reported indicating the effects on the demand for medical care of both increases in the means of these distributions and mean preserving spreads of the distributions

the rich domain of uncertainty source functions and their experimental implementation we often deal with uncertain events for which no probabilities are known several normative models have been proposed descriptive studies have usually been qualitative or they estimated ambiguity aversion through one single number this paper introduces the source method a tractable method for quantitatively analyzing uncertainty empirically the theoretical key is the distinction between different sources of uncertainty within which subjective choice based probabilities can still be defined source functions convert those subjective probabilities into willingness to bet we apply our method in an experiment where we do not commit to particular ambiguity attitudes but let the data speak

higher order risk attitudes a review of experimental evidence abstract this paper reviews the recent but fast growing experimental literature on higher order risk attitudes after introducing the theoretical context we first review the basic evidence and empirical moderators of these risk attitudes we then discuss recent extensions to ambiguity time risk and multi attribute utility in the last part we review indirect evidence from applied economic decision tasks

the reflection effect for higher order risk preferences higher order risk preferences are important determinants of economic behaviour we apply insights from behavioural economics we measure higher order risk preferences for pure gains and losses we find a reflection effect not only for second order risk preferences like kahneman and tversky 1979 but also for higher order risk preferences we find risk aversion prudence and intemperance for gains and much more risk loving preferences imprudence and temperance for losses these findings are at odds with a universal preference for combining good with bad or good with good which previous results suggest may underlie higher order risk preferences

estimation of state dependent utility functions using survey data surveys of individual s risk dollar trade offs illuminate not only the local trade off rates but also can be used to address more fundamental questions about the structure of utility functions this largely unexplored empirical area is investigated by developing an econometric technique to estimate utility functions based on survey data on risk dollar trade offs for minor health effects the empirical tests indicate that for all but one of the temporary health effects considered consumers treat injuries as tantamount to a drop in income implying that the health impact does not alter the structure of the utility function in a fundamental way copyright 1991 by mit press

exploring higher order risk effects higher order risk effects play an important role in examining economic behavior under uncertainty a precautionary demand for saving has been linked to the property of prudence and the property of temperance has been used to show how the presence of an unavoidable risk affects one s behavior towards a second risk these two properties also play key roles in aversion to negative skewness and to kurtosis respectively both properties recently have been characterized by preferences over lottery pairs in simple 50 50 gambles the simplicity of this characterization is ideal for experimental investigation this article reports the results of such experiments and concludes that there is behavioral evidence for prudence but not for temperance implications of these results for both expected utility and non expected utility models are examined

developments in non expected utility theory the hunt for a descriptive theory of choice under risk this article reviews recent developments in the economic theory of individual decision making under risk since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways considerable research effort has now been devoted to the project of developing a superior descriptive model following an overview of non expected utility theories which distinguishes between conventional and non conventional approaches the paper seeks to assess these alternative models in terms of empirical success using laboratory and field data and theoretical usefulness the closing sections reflect on some new directions emerging in this literature

measuring multivariate risk preferences in the health domain we investigate univariate and multivariate risk preferences for health longevity and wealth we measure attitudes toward correlation and attitudes toward higher order dependence structures such as cross prudence and cross temperance making use of the risk apportionment technique proposed by eeckhoudt et al 2007 for multivariate gains we find correlation aversion and cross prudence in longevity and wealth for losses we observe correlation seeking and cross imprudence we do not find clear evidence for cross temperance our results indicate that longevity and wealth are considered to be substitutes for gains but not for losses second univariate higher order risk preferences are comparable for longevity and wealth although somewhat closer to linearity for wealth third we find evidence that attitudes toward dependence structures in the health domain are sign dependent

uncertain health and survival effects on end of life consumption this article analyzes the impact of health and survival uncertainty on the saving and consumption decisions of retirees a dynamic programming approach is used to model the household s planning problem the utility parameters are estimated using panel data we find that a fall into poor health raises the marginal utility from consumption simulations are used to indicate the effects of falling into poor health and loss of spouse they reveal a large transfer from the healthy to the sick partner and a strong dependence of saving on the survivor benefits suggesting that concern about the surviving spouse is an important motive for saving

testing for prudence and skewness seeking numerous theoretical predictions such as precautionary saving or preventive behavior have been derived for prudent decision makers further prudence can be characterized as downside risk aversion and plays a key role in preference for skewness we use a simple experimental method to test for prudence and skewness preference in the laboratory and compare the two to this end we introduce a novel graphical representation of compound lotteries that is easily accessible to subjects and test it for robustness using a factorial design prudence is observed on the aggregate and individual level we find that prudence does not boil down to skewness seeking we further provide some theoretical explanations for this result this paper was accepted by peter wakker decision analysis

higher order risk attitudes demographics and financial decisions we conduct an experiment to study the prevalence of the higher order risk attitudes of prudence and temperance in a large demographically representative sample as well as in a sample of undergraduate students participants make pairwise choices between lotteries of the form proposed by eeckhoudt and schlesinger 2006 the choices in these lotteries isolate prudent from imprudent and temperate from intemperate behavior we relate individuals risk aversion prudence and temperance levels to demographics and financial decisions we observe that the majority of individuals decisions are consistent with risk aversion prudence and temperance in both the student and the demographically representative sample an individual s level of prudence is predictive of his wealth saving and borrowing behavior outside of the experiment while temperance predicts the riskiness of portfolio choices our findings suggest that the coefficient of relative prudence for a representative individual is approximately equal to two

heterogeneity in state dependent utility evidence from strategic surveys a standard result of life cycle models under uncertainty is that optimizing individuals equate the expected marginal utility of consumption across states of the world if insurance is available at actuarially fair rates a small empirical literature has suggested that the marginal utility of consumption is lower in less healthy states we use a novel survey based measure to document significant heterogeneity in health state dependence across individuals largely orthogonal to standard controls we further show that individuals value unhealthy states of the world more when facing work limiting disabilities than when facing disabilities requiring long term care and when facing physical rather than mental disabilities jel d12 i10

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society