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Adaptive risk assessments

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  • Ozbek, Kemal

Abstract

We model a decision maker who can exert costly effort to adapt her risk assessments, thereby optimizing the value of her risky prospects. We provide an axiomatic characterization of the model and show how costs of adaption can be elicited and compared across individuals. In a moral hazard problem, we show that adapting risk assessments can weaken the effect of monetary incentives for effort provision, which has important implications for agency problems. We provide several examples to illustrate how adapting risk assessments can rationalize many well-known choice anomalies.

Suggested Citation

  • Ozbek, Kemal, 2023. "Adaptive risk assessments," Journal of Mathematical Economics, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:mateco:v:106:y:2023:i:c:s0304406823000368
    DOI: 10.1016/j.jmateco.2023.102843
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