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Preface | |

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Acknowledgments | |

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General Theory | |

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The Expected Utility Model | |

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Simple and Compound Lotteries | |

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Axioms on Preferences under Uncertainty | |

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The Expected Utility Theorem | |

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Critics of the Expected Utility Model | |

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The Allais Paradox | |

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The Allais Paradox and Time Consistency | |

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Risk Aversion | |

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Characterization of Risk Aversion | |

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Comparative Risk Aversion | |

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Certainty Equivalent and Risk Premium | |

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The Arrow-Pratt Approximation | |

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Decreasing Absolute Risk Aversion | |

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Some Classical Utility Functions | |

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Test for Your Own Degree of Risk Aversion | |

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An Application: The Cost of Macroeconomic Risks | |

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Change in Risk | |

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The Extremal Approach | |

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Second-Order Stochastic Dominance | |

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Diversification | |

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First-Order Stochastic Dominance | |

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The Standard Portfolio Problem | |

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The Standard Portfolio Problem | |

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The Model and Its Basic Properties | |

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The Case of a Small Risk | |

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The Case of HARA Functions | |

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The Impact of Risk Aversion | |

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The Impact of a Change in Risk | |

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The Equilibrium Price of Risk | |

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A Simple Equilibrium Model for Financial Markets | |

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The Equity Premium Puzzle | |

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The Equity Premium with Limited Participation | |

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The Equity Premium and the Integration of International Financial Markets | |

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Some Technical Tools and Their Applications | |

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A Hyperplane Separation Theorem | |

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The Diffidence Theorem | |

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Link with the Jensen's Inequality | |

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Applications of the Diffidence Theorem | |

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Diffidence | |

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Comparative Diffidence | |

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Central Risk Aversion | |

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Central Riskiness | |

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The Covariance Rule | |

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Log-Supermodularity | |

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Definition | |

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Log-Supermodularity and Single Crossing | |

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A Theoretical Result | |

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Applications to the Standard Portfolio Problem | |

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Jewitt's Preference Orders | |

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Expectation of a Log-Supermodular Function | |

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A Theoretical Result | |

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Two Applications | |

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Multiple Risks | |

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Risk Aversion with Background Risk | |

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Preservation of DARA | |

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The Comparative Risk Aversion Is Not Preserved | |

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Extensions with Dependent Background Risk | |

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Affiliated Background Risk | |

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The Comparative Risk Aversion in the Sense of Ross | |

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The Tempering Effect of Background Risk | |

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Risk Vulnerability | |

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Risk Vulnerability and Increase in Risk | |

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Increase in Background Risk | |

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Increase in the Endogenous Risk | |

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Risk Vulnerability and the Equity Premium Puzzle | |

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Generalized Risk Vulnerability | |

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Standardness | |

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Taking Multiple Risks | |

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The Interaction between Asset Demand and Small Gambles | |

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Are Independent Assets Substitutes? | |

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The i.i.d. Case | |

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The General Case | |

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The Dynamic Investment Problem | |

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Static versus Dynamic Optimization | |

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The Standard Portfolio Problem | |

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The Model | |

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The HARA Case | |

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A Sufficient Condition for Younger People to Be More Risk-Averse | |

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Discussion of the Results | |

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Nonlinear Risk Tolerance | |

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Nondifferentiable Marginal Utility | |

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Background Risk and Time Horizon | |

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Investors Bear a Background Risk at Retirement | |

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Stationary Income Process | |

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Special Topics in Dynamic Finance | |

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The Length of Periods between Trade | |

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Dynamic Discrete Choice | |

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Constraints on Feasible Strategies | |

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The Effect of a Leverage Constraint | |

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The Case of a Lower Bound on the Investment in the Risky Asset | |

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The Case of an Upper Bound on the Investment in the Risky Asset | |

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The Arrow-Debreu Portfolio Problem | |

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The Demand for Contingent Claims | |

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The Model | |

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Characterization of the Optimal Portfolio | |

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The Impact of Risk Aversion | |

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Risk on Wealth | |

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The Marginal Propensity to Consume in State [pi] | |

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The Preservation of DARA and IARA | |

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The Marginal Value of Wealth | |

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Aversion to Risk on Wealth | |

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Consumption and Saving | |

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Consumption under Certainty | |

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Time Separability | |

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Exponential Discounting | |

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Consumption Smoothing under Certainty | |

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Analogy with the Portfolio Problem | |

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The Social Cost of Volatility | |

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The Marginal Propensity to Consume | |

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Time Diversification and Self-Insurance | |

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Precautionary Saving and Prudence | |

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Prudence | |

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The Demand for Saving | |

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The Marginal Propensity to Consume under Uncertainty | |

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Does Uncertainty Increase the MPC? | |

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Does Uncertainty Make the MPC Decreasing in Wealth? | |

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More Than Two Periods | |

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The Euler Equation | |

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Multiperiod Precautionary Saving | |

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Illiquid Saving under Uncertainty | |

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The Equilibrium Price of Time | |

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Description of the Economy | |

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The Determinants of the Interest Rate | |

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The Interest Rate in the Absence of Growth | |

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The Effect of a Sure Growth | |

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The Effect of Uncertainty | |

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The Risk-Free Rate Puzzle | |

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The Yield Curve | |

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The Pricing Formula | |

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The Yield Curve with HARA Utility Functions | |

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A Result When There Is No Risk of Recession | |

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Exploring the Slope of the Yield Curve When There Is a Risk of Recession | |

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The Liquidity Constraint | |

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Saving as a Buffer Stock | |

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The Liquidity Constraint Raises Risk Aversion | |

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The Liquidity Constraint and the Shape of Absolute Risk Tolerance | |

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Numerical Simulations | |

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The Saving-Portfolio Problem | |

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Precautionary Saving with an Endogenous Risk | |

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The Case of Complete Markets | |

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The Case of the Standard Portfolio Problem | |

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Discussion of the Results | |

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Optimal Portfolio Strategy with Consumption | |

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The Merton-Samuelson Model | |

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Disentangling Risk and Time | |

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The Model of Kreps and Porteus | |

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Preferences for an Early Resolution of Uncertainty | |

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Prudence with Kreps-Porteus Preferences | |

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Equilibrium Prices of Risk and Time | |

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Efficient Risk Sharing | |

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The Case of a Static Exchange Economy | |

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The Mutuality Principle | |

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The Sharing of the Social Risk | |

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Decomposition of the Problem | |

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The Veil of Ignorance | |

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Efficient Sharing Rules of the Macro Risk | |

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A Two-Fund Separation Theorem | |

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The Case of Small Risk per Capita | |

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Group's Attitude toward Risk | |

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The Representative Agent | |

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Arrow-Lind Theorem | |

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Group Decision and Individual Choice | |

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Introducing Time and Investment | |

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A Final Remark: The Concavity of the Certainty Equivalent Functional | |

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The Equilibrium Price of Risk and Time | |

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An Arrow-Debreu Economy | |

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Application of the First Theorem of Welfare Economics | |

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Pricing Arrow-Debreu Securities | |

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Pricing by Arbitrage | |

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The Competitive Price of Risk | |

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The Competitive Price of Time | |

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Spot Markets and Markets for Futures | |

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Corporate Finance in an Arrow-Debreu Economy | |

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Searching for the Representative Agent | |

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Analytical Solution to the Aggregation Problem | |

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Wealth Inequality, Risk Aversion, and the Equity Premium | |

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Wealth Inequality and the Risk-Free Rate | |

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The Consumption Smoothing Effect | |

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The Precautionary Effect | |

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Risk and Information | |

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The Value of Information | |

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The General Model of Risk and Information | |

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Structure of Information | |

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The Decision Problem | |

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The Posterior Maximum Expected Utility Is Convex in the Vector of Posterior Probabilities | |

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The Value of Information Is Positive | |

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Refining the Information Structure | |

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Definition and Basic Characterization | |

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Garbling Messages and the Theorem of Blackwell | |

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Location Experiments | |

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The Value of Information and Risk Aversion | |

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A Definition of the Value of Information | |

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A Simple Illustration: The Gambler's Problem | |

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The Standard Portfolio Problem | |

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Decision Making and Information | |

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A Technique for the Comparative Statics of More Informativeness | |

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The Portfolio-Saving Problem | |

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A Digression: Scientific Uncertainty, Global Warming, and the "Precautionary Principle" | |

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The Saving Problem with Uncertain Returns | |

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Precautionary Saving | |

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The Value of Flexibility and Option Value | |

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Predictability and Portfolio Management | |

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Exogenous Predictability | |

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Endogenous Predictability and Mean-Reversion | |

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Information and Equilibrium | |

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Hirshleifer Effect | |

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Information and the Equity Premium | |

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Epilogue | |

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The Important Open Questions | |

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The Independence Axiom | |

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Measures of Risk Aversion | |

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Qualitative Properties of the Utility Function | |

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Economics of Uncertainty and Psychology | |

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Bibliography | |

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Index of Lemmas and Propositions | |

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Index of Subjects | |