• Proceedings of the Korean Operations and Management Science Society Conference
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• 1992.04b
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• pp.403-412
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• 1992

This note examines a situation where a risk-neutral insurer and a risk-averse individual (prospective insured) negotiate to reach an arbitration point of the price of insurance over the terms of an insurance contract in order to maximize their respective self-interests. The situation is modeled as a Nash bargaining problem. We analyze the dependence of the price of insurance, which is determined by the Nash solution, on the parameters such as the size of insured loss, the probability of a loss, the degree of risk-aversion of the insured, and the riskiness of loss distribution.

• Journal of Agricultural Extension & Community Development
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• v.23 no.2
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• pp.169-180
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• 2016

This paper assesses the role of informal institutions in determining risk preference among smallholders in Tigray, Ethiopia. We use data from a household survey conducted by the Institute of Poverty Alleviation and International Development (IPAID). We find that households which participate in Debo, an informal labor-sharing institution, or have a friend from whom they can receive help are less likely to be risk-averse. However, participation in Iddir, a traditional form of insurance, is not significantly associated with risk preference. Hence, the existence of social institutions that provide assistance and social connections through reciprocity may be affording security against risk beyond that brought by more monetary forms of insurance. Given the importance of risk attitude in mediating the adoption of improved agricultural production, a policy suggestion is to provide selected aid to households which are less risk-averse agricultural investors. Also, Debo as a labor-sharing institution may serve as a nexus for managing aid and knowledge sharing.

• Environmental and Resource Economics Review
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• v.9 no.4
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• pp.641-661
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• 2000

The study examines the relation between yield insurance and nitrogen fertilizer in Korea. Since the yield insurance has never been introduced in Korea, the simulation method developed by Babcock & Hennessy is used to see the effect. From the simulation, we obtained the following results: (1) When a farmer is assumed to have a risk-neutral utility function, the yield insurance reduces nitrogen fertilizer by 19.74% (2) When a farmer is assumed to have a risk-averse utility function, the yield insurance reduces nitrogen fertilizer by 24.53%.

• Journal of Digital Convergence
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• v.15 no.11
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• pp.107-112
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• 2017

This paper performed an experimental study to test the validity of the prospect theory proposed by Tversky and Kahneman as an alternative to the expected utility theory. 115 college students attended the hypothetical games to choose one of two lotteries, one is safe option while the other one is risky. The risky options were set up to have low, medium or high probability of payoffs or losses. The amount of payoffs and losses of the lotteries was either large or small. Maximum likelihood estimation of the hypothetical games have shown that in case of high probability of positive payoffs the respondents were risk averse and when the probability of positive payoffs were small the respondents were risk loving. when the possibility of loss is high they were risk loving, while the probability is of loss is low the respondents were found to be risk averse. When the probability of risky options were medium the results were significant statistically in case of only losses. The amount of positive payoff or losses does not affect the results. Overall the results of this experiments support the prospect theory more than those of Laury & Holts (2008).

• The Journal of Fisheries Business Administration
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• v.39 no.2
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• pp.109-123
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• 2008

This study is aimed to establish an investment decision model for offshore aquaculture project of rock bream in Korea using a certainty equivalent method (CEM) based on the expected utility theory and to investigate its economic viability under risk and uncertainty. In the analysis with CEM, the effects of risk attitude and risk level on investment and risk premium were examined and the impacts of various risk and uncertainty factors on the investment decision were also assessed. In addition, the outcomes were compared to those evaluated by the traditional net present value (NPV) method. Results show that risk premium grew as the investors became more risk averse and uncertainty level (the variance of NPV) increased. Consequently, the certainty equivalent value was predicted to decrease from the value assessed by the traditional NPV method.

• Journal of the Korean Operations Research and Management Science Society
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• v.35 no.4
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• pp.33-53
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• 2010

When purchase prices of a raw material fluctuate over time, the total purchasing cost is mainly affected by reordering time. Existing researches focus on deciding the right time when the demand for each period is replenished at the lowest cost. However, the decision is based on expected future prices which usually turn out to include some error. This discrepancy between expected prices and actual prices deteriorates the performance of inventory models dealing with fluctuating purchase prices. In this paper, we propose a new inventory model which incorporates not only cost but also risk into making up a replenishment schedule to meet each period's demand. For each replenishment schedule, the risk is defined to be the variance of its total cost. By introducing the risk into the objective function, the variability of the total cost can be mitigated, and eventually more stable replenishment schedule will be obtained. According to experimental results from crude oil inventory management, the proposed model showed better performance over other models in respect of variability and cost.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.19 no.4
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• pp.433-438
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• 2018

This study examined the effects of ambiguity aversion on the self-protection and self-insurance efforts using a two-period model to consider the time difference between making an effort and occurring loss, which is in contrast with the existing one-period model. The loss follows a binary distribution while the distribution is ambiguous. The distribution depends on the state variable. First, the effort of ambiguity averse individuals is not always greater than that of ambiguity neutral ones. Second, the effects of absolute ambiguity aversion (AAA), which does not appear in one-period model, were observed. Not-increasing AAA is a sufficient condition to increase the efforts of ambiguity averse individuals compared to those of ambiguity neutral ones. In addition, the change in effort also depends on the probability function of the state. Lastly, the results hold even when the individual is risk neutral or risk loving. As a result, ambiguity aversion needs to be considered independently with risk aversion.

• Journal of the Korean Operations Research and Management Science Society
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• v.37 no.2
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• pp.17-29
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• 2012

We examine a mortgage bank's incentive distortion problem when the bank sells its existing loan through MBS(Mortgage-Backed Security), considering the mortgage market structure and varying investors' risk attitude. Main findings in our comparative statics are the followings. The bank's monitoring incentive on the loan sold is distorted downwards when the deposit interest rate is lower than the coupon rate of MBS. Credit enhancement associated with the loan sale may mitigate the incentive distortion problem. However, the downward distortion of monitoring incentive does not disappear unless the credit enhancement, a loan guarantee, is provided up to 100%. Finally as the investors' risk preference changes from risk-neutral to risk-averse type, the incentive distortion problem becomes more severe. At the end, we recommend the introduction of covered bond in order to mitigate the incentive distortion problem, which is inevitable to current pass-through MBS.

• IE interfaces
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• v.6 no.2
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• pp.151-169
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• 1993

In this research, we proposed "coefficient of inequality" as a measure of distributional inequality for an alternative, which is defined as the area between the diagonal line from 0 to 1 and the Lorenz curve of the given alternative. Next, we showed theoretical relationship between stochastic dominance and the coefficient of inequality as a means to determine the preferred alternative when decision is made with incomplete information about decision maker's utility function. Then, two experiments were performed to test subject‘s attitude toward risk. The results of the experiments support the idea that when a decision maker is risk averse or risk prone, he/she can use the coefficient of inequality as a decision rule to choose the preferred alternative instead of using stochastic dominance. Thus, according to decision maker’s attitude toward risk, the decision rule proposed here can be used as a valuable aid in decision making under uncertainty with incomplete information.

• Industrial Engineering and Management Systems
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• v.16 no.1
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• pp.22-43
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• 2017

It is urgently-needed to construct a green supply chain (GSC) from collection of used products through recycling of them to sales of products using the recycled parts. Besides, it is necessary to consider the uncertainty in product demand as a risk in a GSC. This study proposes the optimal operations for a GSC with a retailer and a manufacturer. A retailer pays an incentive for collection of used products from customers and sells a single type of products in a market. A manufacturer produces the products ordered by the retailer, using recyclable parts with acceptable quality and compensates the collection cost of used products as to the recycled parts. This paper discusses the following risk attitudes: risk-neutral attitude, risk-averse attitude, and risk-prone attitude. Using mean-variance analysis, the optimal decisions for product order quantity, collection incentive, and lower limit of quality level, in the decentralized GSC (DGSC) and the integrated GSC (IGSC) are made. DGSC optimizes the utility function of each member. IGSC does that of the whole system. The analysis numerically investigates how (i) risk attitude and (ii) quality of recyclable parts affect the optimal operations. Supply chain coordination between GSC members to shift IGSC from DGSC is discussed.