AXA Chair in Risk

Massimo marinacci

Nationality Italian

Year of selection 2010

Institution Università Commerciale Luigi Bocconi

Country Italy

Risk Socio-Economics


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The Beauty of Incertainty

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 (the Bayesian method) have been used to look at the world and describe reality. This approach is suitable for gambling or probability courses, but, alas, does not seem to apply to the current economic events. When the need for a more realistic and complex description of the events we are facing was most needed, Professor Massimo Marinacci addressed the question.
Thanks to an international career (Northwestern University in the US, University of Toronto in Canada, Universities of Bologna and Torino in Italy) and a solid background in economics and applied mathematics, Massimo Marinacci is one of the leaders in decision theory – an area of economics at the intersection between psychology and statistics that studies economic choices under uncertainty. In the past twenty years, researchers in this area have elaborated new models - both conceptually innovative and mathematically nontrivial - that describe how decision/policy makers confront uncertain situations in a rational way. “We don’t provide solutions,” he explains “we don’t provide percentages, we formalise 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 formalise 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. Along with Itzhak Gilboa (AXA chair at HEC-Paris), Massimo Marinacci delivered an invited lecture on these topics at the 2010 world congress of the Econometric Society, the most prestigious meeting in economics (held every five years).
Another contribution from Professor Massimo 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 towards 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 analysing 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 individual level, but also more large scale: societies in which pride prevails present high diversity in consumption and income, whereas conformism in consumption choices is the rule in societies characterised by envy. To pursue his studies in this new research area (as well as his studies on choice under uncertainty), Marinacci was awarded one of the European Research Council’s competitive and prestigious Advanced Grants.
Massimo Marinacci is the newly appointed holder of the AXA-Bocconi Chair in Risk. The objective of this chair is the advancement and diffusion of modelling techniques to capture and manage the kind of risks that fall under the categories of model uncertainty, Knightian uncertainty, ambiguity, extreme events and unforeseen contingencies. Massimo Marinacci carries out his research on decision making in conditions of uncertainty in collaboration with Bocconi Professors Simone Cerreia-Vioglio and Fabio Maccheroni, as well as selected Bocconi Masters and PhD students.
The findings are expected to have a concrete impact on economic and social development by advancing relevant knowledge in theory and policy, as well as by helping to train future leaders to face uncertain environments.
They perform their research at the Department of Decision Sciences of Università Bocconi, a private university founded in 1902 in Milano and internationally known as an excellent research and teaching institution specialising 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.

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