|
on Utility Models and Prospect Theories |
| By: | Han Bleichrodt (Erasmus University, Rotterdam); Jose María Abellán Perpiñán (University of Murcia); Jose Luis Pinto-Prades (Department of Economics, Universidad Pablo de Olavide); Ildefonso Méndez-Martínez (University of Murcia) |
| Abstract: | This paper explores inconsistencies that occur in utility measurement under risk when expected utility is assumed and the contribution that prospect theory and some other generalizations of expected utility can make to the resolution of these inconsistencies. We used five methods to measure utilities under risk and found clear violations of expected utility. Of the theories studied, prospect theory was the most consistent with our data. The main improvement of prospect theory over expected utility was in comparisons between a riskless and a risky prospect (riskless-risk methods). We observed no improvement over expected utility in comparisons between two risky prospects (risk-risk methods). An explanation for the latter observation may be that there was less distortion in probability weighting in the interval [0.10, 0.20] than has commonly been observed. |
| Keywords: | Utility Measurement, Nonexpected Utility, Prospect Theory, Health. |
| JEL: | I10 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:06.19&r=upt |
| By: | Paul Levine (University of Surrey) |
| Keywords: | Linear-quadratic approximation, dynamic stochastic general equilibrium models, utility-based loss function |
| JEL: | E52 E37 E58 |
| Date: | 2006–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecfa:441&r=upt |
| By: | Han Bleichrodt (Erasmus University, Rotterdam); Jose Luis Pinto-Prades (Department of Economics, Universidad Pablo de Olavide) |
| Abstract: | The classic preference reversal phenomenon arises in a comparison between a choice and a matching task. We present a new type of preference reversal which is entirely choice-based. Because choice is the basic primitive of economics, the preference reversal we observe is more troubling for economics. The preference reversal was observed in two experiments, both involving large representative samples from the Spanish population. The data were collected by professional interviewers in face-to-face interviews. Possible explanations for the preference reversal are the anticipation of disappointment and elation in risky choice and the impact of ethical considerations. |
| Keywords: | Preference reversal, Choice behavior, Stochastic dominance, Disappointment and elation, Health |
| JEL: | I10 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:06.18&r=upt |
| By: | Andersson, Henrik (VTI) |
| Abstract: | We examine how WTP for a reduction in road-mortality risk varies with different individual characteristics and how subjective mortality-risk estimates differ from objective (statistical) mortality-risk values. Using data from a Swedish contingent valuation study, we find some support that WTP declines with age and background risk, but we find no support that WTP varies with health status. Further, we find that respondents underassess their own mortality risks, both road- and total-mortality risks, compared to the objective risk measures for Sweden at the time of the survey. |
| Keywords: | age; background risk; contingent valuation; health status; willingness to pay; risk perception; road safety |
| JEL: | C51 D61 J28 |
| Date: | 2006–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:vtiwps:2006_005&r=upt |
| By: | George W. Evans; Avik Chakraborty (Department of Economics, University of Tennessee) |
| Abstract: | Under rational expectations and risk neutrality the linear projection of exchange rate change on the forward premium has a unit coefficient. However, empirical estimates of this coefficient are significantly less than one (and often negative). We investigate whether replacing rational expectations by discounted least squares (or "perpetual") learning can explain the result. We calculate the asymptotic bias under perpetual learning and show that there is a negative bias that becomes strongest when the fundamentals are strongly persistent, i.e. close to a random walk. Simulations confirm that adaptive learning is potentially able to explain the forward premium puzzle. |
| Keywords: | Learning, exchange rates, forward premium. |
| JEL: | D83 D84 F31 G12 G15 |
| Date: | 2006–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:ore:uoecwp:2006-8&r=upt |
| By: | Jose Luis Pinto-Prades (Department of Economics, Universidad Pablo de Olavide); Jorge E. Martinez Perez (University of Murcia); Jose María Abellán Perpiñán (University of Murcia) |
| Abstract: | This paper tests whether logically equivalent risk formats can lead to different health state utilities elicited by means of the standard gamble (SG) method. We compare SG utilities elicited when probabilities are framed in terms of frequencies with respect to 100 people in the population (i.e., X out of 100) with SG utilities elicited for frequencies with respect to 1,000 people in the population (i.e., Y out of 1,000). We found that utilities were significant higher when success and failure probabilities were framed as frequencies type “Y out of 1,000” rather than as frequencies type “X out of 100”. This framing effect, known as Ratio Bias, may have important consequences in resource allocation decisions. |
| Keywords: | Framing effect, risk format, standard gamble, health state, dual-process theories. |
| JEL: | I10 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:06.16&r=upt |
| By: | Alex Gershkov (University of Bonn, Department of Economics, Economic Theory II, Lennéstrasse 37, 53113 Bonn, Germany. Tel: +49 228737993, Fax: +49 228737940, alex.gershkov@uni-bonn.de); Paul Schweinzer (Department of Economics, University of Bonn Lennéstraße 37, 53113 Bonn, Germany paul.schweinzer@uni-bonn.de) |
| Abstract: | We address the scheduling problem of reordering an existing queue into its efficient order through trade. To that end, we consider individually rational and balanced budget direct and indirect mechanisms. We show that this class of mechanisms allows us to form efficient queues provided that existing property rights for the service are small enough to enable trade between the agents. In particular, we show on the one hand that no queue under a fully deterministic service schedule such as first-come, first-serve can be dissolved efficiently and meet our requirements. If, on the other hand, the alternative is service anarchy (ie. a random queue), every existing queue can be transformed into an efficient order. |
| Keywords: | Scheduling, Queueing, Mechanism design |
| JEL: | C72 D44 D82 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:144&r=upt |