Research & Publications
Published Articles
Higher-Order Generalizations of Arrow-Pratt and Ross Risk Aversion:
A Comparative Statics Approach, with W.S. Neilson, Journal of
Economic Theory 136 (2007) 719-728. (pdf)
Abstract: We analyze comparative risk aversion in a new way, through a comparative statics
problem in which, for a cost, agents can shift from an initial probability distribution
toward a preferred distribution. The Ross characterization arises when the original
distribution is riskier than the preferred distribution and the cost is monetary, and the Arrow-Pratt characterization arises when the original distribution differs
from the preferred distribution by a simple mean-preserving spread and the cost
is a utility cost. Higher-order increases in risk lead to higher-order generalizations,
and the comparative statics method yields a unified approach to the problem of
comparative risk attitudes.
Option Price without Expected Utility, with W.D. Shaw, Economics Letters 100 (2008) 408-410. (pdf)
Abstract: The option price (OP) is commonly acknowledged as the preferred ex ante welfare measure, and is derived in the context of the expected utility (EU) model. We consider the meaning of this ex ante welfare measure in the rank-dependent expected utility (RDEU) framework, finding key differences with the EU-OP. The importance of this pertains to doing benefit-cost analysis when RDEU maximizers are prevalent in society.
Working Papers
The Impact of Societal Risk Attitudes on Terrorism and Counterterrorism, with W.S. Neilson, October 2008 (pdf)
Abstract: We analyze decisions made by a group of terrorists and a target government in a zero-sum game in which the terrorists minimize, and the government maximizes, the expected utility of the median voter in the target country. The terrorists' strategy balances the probability and the severity of the attack while the government chooses the level of investment reducing the probability and/or mitigating the severity of attacks. We find that risk aversion affects the strategies of both the government and the terrorists, leading to more severe, less frequent attacks but not necessarily more counterterrorism expenditures.
Competitive Cheap Talk, with C. Oyarzun, January 2008.
Abstract: We study strategic communication in some variations of the sender-receiver game
where an uninformed receiver chooses an object on recommendations from many
informed senders whose incentives are unknown to the receiver. In a game where
some senders always truthfully report object's quality and some are biased senders
who communicate strategically, we find that an equilibrium always exists in this
game and it is unique. If all senders are strategic and there exist some neutral senders whose objectives are aligned with the receiver's, then many equilibria exist.
These equilibria include one in which the neutral senders always tell the truth and
a class of equilibria in which the neutral senders exaggerate when the observed
quality is high enough. We generalize the analysis to situations where the receiver
can observe a correlated public signal about each object and the receiver has a
minimum requirement of quality.
Work in Progress
Refund Contracts and Price Discrimination in Airlines, with D. Escobari.
Abstract: We show how a monopoly airline uses two ticket types, refundable and non-refundable, to screen consumers with different willingness to pay. Our theoretical model suggests that the difference between these two fares consists of refundability value and price discrimination, and the fare difference diminishes as risk-averse passengers learn about their individual demand uncertainty. Using an original dataset, we find that, after controlling for unobserved seat- and flight-specific characteristics, the empirical evidence from the U.S. airline industry supports our theory.