Launch of the AXA-Bocconi Chair in Risk

Uncertainty reigns nowadays. Financiers have a hard time trying to ensure effective risk management and portfolio allocations. The picture is not softened by a context of financial crisis. Until recently, probability lenses were used to look at the world and describe reality. But, alas, this suitable approach for gambling does not seem to apply to the current economic events.

The advancement and diffusion of modeling techniques to capture and manage the new and different categories of risks in the social sciences will be at the core of the activity of the new AXA-Bocconi Chair in Risk. This dedicated and permanent chair has been established thanks to a donation of the AXA Research Fund to Università Bocconi of an endowment of 2 million euro. The chair has been assigned to Pr Massimo Marinacci in recognition of his research work in the field of Decision theory.

"The partnership with AXA Research Fund represents a very significant step in our strategy of internationalization of our teaching and research and fits into the frame of our fundraising activity in support of the Strategic Plan for the development of our university," says Guido Tabellini, rector of Università Bocconi. "Thanks to the financing of the Chair in Risk and the activity of prof. Marinacci, Bocconi will pursue a field of study at the frontier of research and of a very significant impact."

Decision theory is an area of economics at the intersection between psychology and statistics that studies economic choices under uncertainty. "We don't provide solution nor percentages," Pr Marinacci explains, we formalize models that clarify what alternatives decision makers face and how they should handle them. Then it's up to them to choose." Some of these models have been used in a variety of applications, from environmental issues (where they have been used to formalize the often mentioned, but conceptually elusive, precautionary principle) to finance and insurance applications (where they can help explain the trading choices of financial intermediaries in these days of high uncertainty, otherwise hard to explain with traditional risk theories), to risk management in financial institutions and central banks.

Thanks to an international career and a solid background in economics and applied mathematics, Pr Marinacci is one of the leaders in decision theory. Along with Pr Itzhak Gilboa (AXA Chair at HEC-Paris), Pr Marinacci delivered an invited lecture on these topics at the 2010 World Congress of the Econometric Society, the most prestigious meeting in economics. Pr Marinacci was also awarded one of the European Research Council's competitive and prestigious Advanced Grants. Pr Marinacci performs his research at the Department of Decision Sciences of Università Bocconi, a private university founded in 1902 in Milan and internationally known as an excellent research and teaching institution specializing in economics, finance, management and law. The department has a distinguished tradition in decision theory, with some of the key players in the area as faculty or alumni.

A major contribution from Pr Marinacci comes from the importance of emotions impacting individual decision making in contemporary societies. This new approach suggests a choice model which includes two attitudes toward peers' choices: envy and pride. "These social emotions are not systematically taken into account by economic theory, yet they play a key role in individual choices: when incorporated in the model analyzing individual preference, they have a direct impact on decision making. Is envy the prevailing attitude? Social equilibrium will dwell on conformism and workaholism. Or is it pride? Anticonformism and diversification of consumption will arise instead. This model applies not only at an individual level, but on a larger scale: societies in which pride prevails present high diversity in consumption and income, whereas conformism in consumption choices is the rule in societies characterized by envy", declared Pr Marinacci.

Andrea Rossi, CEO of AXA Assicurazioni and sponsor of the chair, commented: "uncertainty has become the real protagonist of our times: it has hit heavily the world we live in, generating a hunger for answers to the doubts the society is plagued by. We need effective and influential solutions that might help us interpret and understand what is happening, anticipating what we are moving towards. The private sector should play a key role in encouraging progress in this field, promoting research as an investment for the future, coherently with corporate responsibility efforts. Researching on risk and trying to understand those phenomena that feature our dynamic and complex world is part of the challenge of a major Group like AXA. Understanding and managing risks goes beyond business, it is a social duty for an insurance Group to finance top level research on global risks. We believe in knowledge as the starting point to make a good job: studying long term risks means knowing them to be in the position of managing them, protecting people at any stage and situation of their life".

About Prof Massimo Marinacci, Chair holder

Since he started his career in 1996 as assistant professor of Economics at the University of Toronto (Canada), Professor Marinacci has published 48 articles in peer reviewed international journals, including leading journals in Economics (such as Econometrica, Review of Economic Studies, Games and Economic Behavior, Journal of Economic Theory, and Theoretical Economics), Quantitative Finance and Insurance (Mathematical Finance and Insurance: Mathematics and Economics), and Applied Mathematics (Annals of Probability and Mathematics of Operations Research). His papers have received many citations. He is also in the editorial board of leading international journals (Games and Economic Behavior, Journal of Economic Theory, Journal of the European Economic Association, Mathematics of Operations Research, and Theoretical Economics), and has given seminars in many international research institutions.