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on Utility Models and Prospect Theories |
| By: | Yasemin Boztug; Lutz Hildebrandt |
| Abstract: | The following research is guided by the hypothesis that products chosen on a shopping trip in a supermarket can indicate the preference interdependencies between different products or brands. The bundle chosen on the trip can be regarded as the result of a global utility function. More specifically: the existence of such a function implies a cross-category dependence of brand choice behavior. It is hypothesized that the global utility function related to a product bundle results from the marketing-mix of the underlying brands. Several approaches exist to describe the choice of specific categories from a set of many alternatives. The models are discussed in brief; the multivariate logit approach is used to estimate a model with a German data set. |
| Keywords: | market basket analysis, multivariate logit model, brand choice behavior, marketing-mix |
| JEL: | C31 C33 M31 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2005-028&r=upt |
| By: | Frank Milne (Queen's University); David Kelsey (University of Exeter) |
| Abstract: | This paper studies corporate governance when a firm operates in imperfect markets. We derive firms’ decisions from utility maximisation by individuals. If those involved in decisions are also consumers, the usual monopoly distortion is reduced. Corporate governance can effect the equilibrium in the product (or input) markets. This enables us to endogenise the objective function of the firm. If the firm cannot commit not to change its constitution, we find a Coase-like result where all market power is lost in the limit. We present a more abstract model of governance in the presence of market distortions. |
| Keywords: | corporate governance, stakeholder, oligopoly, strategic delegation |
| JEL: | D70 L13 L20 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1079&r=upt |
| By: | Jens Leth Hougaard (Department of Economics, University of Copenhagen); Tue Tjur (Copenhagen Business School); Lars Peter Østerdal (Department of Economics, University of Copenhagen) |
| Abstract: | Recent studies have tested the preference axioms of completeness and transitivity, and have detected other preference phenomena such as unstability, learning- and tiredness effects, ordering effects and dominance, in stated preference discrete choice experiments. However, it has not been explicitly addressed in these studies which preference models are actually being tested, and the connection between the statistical tests performed and the relevant underlying models of respondent behavior has not been explored further. This paper tries to fill that gap. We specifically analyze the meaning and role of the preference axioms and other preference phenomena in the context of stated preference discrete choice experiments, and examine whether or how these can be subject to meaningful (statistical) tests. |
| Keywords: | stated preference discrete choice experiments; completeness; transitivity; random utility; statistical tests |
| JEL: | B41 C52 D01 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0611&r=upt |
| By: | Casper G. de Vries; Mandira Sarma; Bjørn N. Jorgensen; Jean-Pierre Zigrand; Jon Danielsson |
| Abstract: | In this paper we compare overall as well as downside risk measures with respect to the criteria of first and second order stochastic dominance. While the downside risk measures, with the exception of tail conditional expectation, are consistent with first order stochastic dominance, overall risk measures are not, even if we restrict ourselves to two-parameter distributions. Most common risk measures preserve consistent preference orderings between prospects under the second order stochastic dominance rule, although for some of the downside risk measures such consistency holds deep enough in the tail only. Infact, the partial order induced by many risk measures is equivalent to sosd. Tail conditional expectation is not consistent with respect to second order stochastic dominance. In this paper we compare overall as well as downside risk measures with respect to the criteria of first and second order stochastic dominance. While the downside risk measures, with the exception of tail conditional expectation, are consistent with first order stochastic dominance, overall risk measures are not, even if we restrict ourselves to two-parameter distributions. Most common risk measures preserve consistent preference orderings between prospects under the second order stochastic dominance rule, although for some of the downside risk measures such consistency holds deep enough in the tail only. Infact, the partial order induced by many risk measures is equivalent to sosd. Tail conditional expectation is not consistent with respect to second order stochastic dominance.KEY WORDS: stochastic dominance, risk measures, preference ordering,utility theoryJEL Classification: D81, G00, G11 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp565&r=upt |
| By: | Wolfgang Leininger |
| Abstract: | An auction is viewed as a process that in equilibrium generates a binary lottery for each bidder,which the bidder "buys" with his bid. This view allows for a simple way to consistently assess differences in bidding behavior over different bidders and different auctions. E.g. all auctions covered by the Revenue Equivalence Theorem are shown to generate lotteries with identical probabilities, but different pay-offs. It is then argued, that understanding of (experimentally observed) bidding behavior in auctions is enhanced by drawing on the large literature on choice behavior over lotteries. |
| URL: | http://d.repec.org/n?u=RePEc:mik:wpaper:00_06&r=upt |
| By: | Eckhard Platen (School of Finance and Economics, University of Technology, Sydney) |
| Abstract: | This paper aims to discuss the optimal selection of investments for the short and long run in a continuous time financial market setting. First it documents the almost sure pathwise long run outperformance of all positive portfolios by the growth optimal portfolio. Secondly it assumes that every investor prefers more rather than less wealth and keeps the freedom to adjust his or her risk aversion at any time. In a general continuous market, a two fund separation result is derived which yields optimal portfolios located on the Markowitz efficient frontier. An optimal portfolio is shown to have a fraction of its wealth invested in the growth optimal portfolio and the remaining fraction in the savings account. The risk aversion of the investor at a given time determines the volatility of her or his optimal portfolio. It is pointed out that it is usually not rational to reduce risk aversion further than is necessary to achieve the maximum growth rate. Assuming an optimal dynamics for a global market, the market portfolio turns out to be growth optimal. The discounted market portfolio is shown to follow a particular time transformed diffusion process with explicitly known transition density. Assuming that the transformed time growth exponentially, a parsimonious and realistic model for the market portfolio dynamics results. It allows for efficient portfolio optimization and derivative pricing. |
| Keywords: | growth optimal portfolio; portfolio selection; risk aversion; minimal market model |
| JEL: | G10 G13 |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:rpaper:163&r=upt |
| By: | Thibault Gajdos (Centre d'Economie de la Sorbonne); Feriel Kandil (CERC) |
| Abstract: | Most prominent models of economic justice (and especially those proposed by Harsanyi and Rawls) are based on the assumption that impartiality is required for making moral decisions. However, although Harsanyi and Rawls agree on that, and furthermore agree on the fact that impartiality can be obtained under appropriate conditions of ignorance, they strongly disagree on the consequences of these assumptions. According to Harsanyi, they provide a justification for the utilitarian doctrine, whereas Rawls considers that they imply egalitarianism. We propose here an extension of Harsanyi's Impartial Observer Theorem, that is based on the representation of ignorance as the set of all possible probability distributions. We obtain a characterization of the observer's preferences that, under our most restrictive conditions, is a linear combination of Harsanyi's and Rawls' criteria. Furthermore, this representation is ethically meaningful, in the sense that individuals' utilities are cardinally measurable and unit comparable. This allows us to conclude that the impartiality requirement cannot be used to decide between Rawls' and Harsanyi's positions. Finally, we defend the view that a (strict) combination of Harsanyi's and Rawls' criteria provides a reasonable rule for social decisions. |
| Keywords: | Impartiality, justice, decision under ignorance. |
| JEL: | D63 D81 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:v06041&r=upt |
| By: | Aliprantis, C. D.; Tourky, Rabee |
| Abstract: | The paper studies the two period incomplete markets model where assets are claims on state contingent commodity bundles and there are no bounds on portfolio trading. The important results on the existence of equilibrium in this model assume that there is a finite number of commodities traded in each spot market and that preferences are given by smooth utility functions. With these assumptions an equilibrium exists outside an “exceptional” set of assets structures and initial endowments. The present paper extends these results by allowing for general infinite dimensional commodity spaces in each spot market. These include all the important commodity spaces studied in the literature on the existence of Walrasian equilibrium – in each spot market the consumption sets are the positive cone of an arbitrary locally solid Riesz space or of an ordered topological vector space with order unit or of a locally solid Riesz space with quasi-interior point. The paper establishes that even with our very general commodity spaces there exists an equilibrium for a “very” dense set of assets structures. Our approach is in the main convex analytic and the results do not require that preferences be smooth or complete or transitive. The typical situation in infinite dimensional commodity spaces does not readily allow for the kind of differential analysis and smoothness assumptions used in the finite dimensional setting. In the general settings that we study it seems that one is restricted to convex analytic techniques and assumptions. Therefore, the concepts and techniques studied in this paper also have important finite dimensional applications. |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1169&r=upt |