|
on Utility Models and Prospect Theory |
| By: | Jim Dolmas |
| Abstract: | This paper incorporates preferences that display first-order risk aversion (FORA) into a standard real business cycle model. Although FORA preferences represent a sharp departure from the expected utility/constant relative risk aversion (EU/CRRA) preferences common in the business cycle literature, the change has only a negligible e¤ect on the model s second moment implications. In fact, for what I argue is an empirically reasonable "ballpark" calibration of the FORA preferences, the moment implications are essentially identical to those under EU/CRRA, while the welfare cost of aggregate fluctuations in the model is substantially larger. |
| Keywords: | Business cycles |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:0704&r=upt |
| By: | Frederik Lundtofte (Swiss Institute of Banking and Finance, University of St-Gallen) |
| Abstract: | This paper analyzes the expected life-time utility and the hedging demands in an exchange only, representative agent general equilibrium under incomplete information. We derive an expression for the investor’s expected life-time utility, and analyze his hedging demands for intertemporal changes in the unobservable stochastic growth of the endowment process and the changing quality of information regarding these changes. The hedging demands consist of two components, which could work in opposite directions so that a conservative consumer may end up having positive hedging demands. Our results are qualitatively different from those within constant growth equilibria. |
| Keywords: | learning, incomplete information, equilibrium, hedging demands |
| JEL: | C13 G11 G12 |
| Date: | 2003–11 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp23&r=upt |
| By: | Alain Trannoy (EHESS and GREQAM-IDEP); John Weymark (Department of Economics, Vanderbilt University) |
| Abstract: | Social welfare dominance criteria based on critical-level generalized utilitarian social welfare functions are investigated. An analogue of a generalized Lorenz curve called a generalized concentration curve is introduced. For a fixed critical utility level c, a partial order of utility distributions based on these curves is defined and shown to coincide with the partial order obtained by declaring one utility distribution to be weakly preferred to a second if and only if the former is weakly preferred to the latter for all inequality averse critical-level c generalized utilitarian social welfare functions. An extension of this result that allows for a range of critical levels is also established. |
| Keywords: | Critical-level utilitarianism, generalized Lorenz dominance, social welfare dominance |
| JEL: | D31 D63 D13 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0707&r=upt |
| By: | Evans, R.; Reich, S. |
| Abstract: | Bester and Strausz (2000) showed that the revelation principle of Bester and Strausz (2001) does not apply in a setting of many agents and no commitment. In their counterexample only one agent has private information. We show that if the parties can make ex ante transfers the revelation principle does extend to this setting. However, we show that it does not extend to a setting in which more than one agent has private information. |
| Keywords: | Revelation Principle, Commitment, Asymmetric Information |
| JEL: | D23 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0731&r=upt |
| By: | James C. Cox; Vjollca Sadiraj |
| Abstract: | Departures from "economic man" behavior in many games in which fairness is a salient characteristic are now well documented in the experimental economics literature. These data have inspired development of new models of social preferences incorporating inequality aversion and quasi-maximin preferences. We report experiments that provide direct tests of these social preference models. Data from the experiments motivate a new model of egocentric altruism. The model rationalizes data from our direct test experiments and data from experiments with proposer competition and responder competition. We discuss generalizations of the egocentric altruism model that incorporate agents’ intentions and thus provide a unified approach to modeling behavior in games both with and without reciprocal motivation. |
| JEL: | A12 A13 B49 C70 C91 D63 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2006-13&r=upt |
| By: | Francisco Alvarez-Cuadrado; Ngo Van Long |
| Abstract: | Ranking development programs using integrals of discounted utilities can yield drastic consequences that offend our sense of justice. New alternative social welfare criteria should be considered. A reaction to discounted utilitarianism is to moderate its effects by adding to the social welfare function a second term that takes seriously the welfare of the generations that live in the far distant future. Chichilnisky proposes a social welfare function that has two desirable properties: (i) non-dictatorship of the present, and (ii) non-dictatorship of the future. However, in many economic models, there exists no optimal path under the Chichilnisky criterion. We introduce a third desideratum: "non-dictatorship of the least advantaged," and propose a new welfare criterion that is morally compelling. It is a weighted average of two terms: (a) the sum of discounted utilities, and (b) the utility level of the least advantaged generation. We derive necessary conditions to characterize growth paths that satisfy our criterion, and show that in some models with familiar dynamic specifications, an optimal path exists and displays appealing characteristics. |
| JEL: | D63 H43 O21 Q20 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:mcl:mclwop:2007-03&r=upt |
| By: | Rui Carvalho (University College London); Giulia Iori (Department of Economics, City University, London); Rui Carvalho |
| Abstract: | In well networked communities, information is often shared informally among an individual’s direct and indirect acquaintances. Here we study a modified version of a model previously proposed by Jackson and Wolinsky to account for communicating information and allocating goods in socioeconomic networks. The model defines a utility function of node i which is a weighted sum of contributions from all nodes accessible from i. First, we show that scale-free networks are more efficient than Poisson networks for the range of average degree typically found in real world networks. We then study an evolving network mechanism where new nodes attach to existing ones preferentially by utility. We find the presence of three regimes: scale-free (rich-get-richer), fit-get-rich, and Poisson degree distribution. The fit-get-rich regime is characterized by a decrease in average path length. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:cty:dpaper:07/12&r=upt |