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The financial crisis that emerged over a year ago was initiated by unwise risky decisions that have generated large financial losses. The crisis has led to a situation not faced before, with no statistics from the past available to readily analyze the problems.

Risks at losses also occur, on smaller scales, in our everyday decisions, and are then usually handled routinely without much thinking. In many important situations, such as the financial crisis, the risks are too large for routine handling, and explicit analyses are required. Such situations occur not only in finance but also in health, economics, business, environmental problems, policy decisions, insurance, and so on. This conference concerns models that can improve our future handling of risks. The focus will be on loss aversion ("losses loom larger than gains") and on new risks for which no statistics from the past are available ("ambiguity" ).

Loss aversion is a central concept in risk analyses today. It was introduced by the renowned Israeli psychologist Daniel Kahneman in prospect theory, who was awarded a Nobel Prize in economics 2002 for it. The concept underlies many anomalies and irrationalities. It calls for a reconsideration of all classical models of risk, and of most empirical studies. Only since an extension provided in 1992 it can be applied to new risks.

There will be two plenary lectures for a general audience in the first morning, one by professor Kahneman on the role of loss aversion in risky decisions, and one jointly by professors Bleichrodt and Wakker on applications of Kahneman’s ideas on loss aversion to health and economics. In the afternoon and during the next day researchers will present the results of their recent investigations on loss aversion and (new) risks. The conference will conclude with the ceremony of an honory doctorat for professor Kahneman and a short speech by Kahneman on behavioral economics.

http://www.eur.nl/ese/english/expertise/ese_conferences/behavioral_economics/

Label: Global Economics