|
on Utility Models and Prospect Theory |
| By: | Clotilde Napp (CREST - Centre de Recherche en Économie et Statistique - [INSEE] - [ École Nationale de la Statistique et de l'Administration Économique], CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]); Elyès Jouini (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]) |
| Abstract: | In this paper we study the stability (in the L p as well as for the almost sure convergence sense) of the optimal investment-consumption strategy with respect to the choice of the utility function. |
| Keywords: | optimal investment strategies; robustnes properties |
| Date: | 2007–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00151579_v1&r=upt |
| By: | Cotter, John; Dowd, Kevin |
| Abstract: | Spectral risk measures are attractive risk measures as they allow the user to obtain risk measures that reflect their subjective risk-aversion. This paper examines spectral risk measures based on an exponential utility function, and finds that these risk measures have nice intuitive properties. It also discusses how they can be estimated using numerical quadrature methods, and how confidence intervals for them can be estimated using a parametric bootstrap. Illustrative results suggest that estimated exponential spectral risk measures obtained using such methods are quite precise in the presence of normally distributed losses. |
| JEL: | G10 G0 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:3499&r=upt |
| By: | Pinto, Luis Santos |
| Abstract: | The prediction of asymmetric equilibria with Stackelberg outcomes is clearly the most frequent result in the endogenous timing literature. Several experiments have tried to validate this prediction empirically, but failed to find support for it. By contrast, the experiments find that simultaneous-move outcomes are modal and that behavior in endogenous timing games is quite heterogeneous. This paper generalizes Saloner’s (1987) and Hamilton and Slutsky’s (1990) endogenous timing games by assuming that players are averse to inequality in payoffs. We explore the theoretical implications of inequity aversion and compare them to the empirical evidence. We find that this explanation is able to organize most of the experimental evidence on endogenous timing games. However, inequity aversion is not able to explain delay in Hamilton and Slutsky’s endogenous timing games. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:unl:unlfep:wp505&r=upt |
| By: | Pinto, Luis Santos |
| Abstract: | This paper studies how reciprocity and inequity aversion influence the behavior of firms in imperfectly competitive markets. The paper shows that if reciprocal firms compete à la Cournot, then they are able to sustain “collusive” outcomes under a positive reciprocity equilibrium. By contrast, Stackelberg warfare outcomes may emerge under a negative reciprocity equilibrium. The results for inequity aversion are similar. Cournot competition between inequity averse firms can be harmful to consumers if it leads to equilibria where firms feel compassion toward each other. However, in equilibria where inequity averse firms are envious of each other consumers are better off than if firms were selfish. The paper also shows that only under very restrictive conditions does reciprocity or inequity aversion have an impact on Bertrand competition. Finally, the paper shows that non-selfish preferences have a greater impact on equilibrium outcomes in markets with a small number of firms. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:unl:unlfep:wp506&r=upt |
| By: | Clotilde Napp (DRM - Dauphine Recherches en Management - [CNRS : UMR7088] - [Université Paris Dauphine - Paris IX], CREST - Centre de Recherche en Économie et Statistique - [INSEE] - [ École Nationale de la Statistique et de l'Administration Économique]); Elyès Jouini (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]); Selima Benmansour (DRM - Dauphine Recherches en Management - [CNRS : UMR7088] - [Université Paris Dauphine - Paris IX]) |
| Abstract: | It is an important issue for economic and finance applications to determine whether individuals exhibit a behavioral bias toward pessimism in their beliefs, in a lottery or more generally in an investment opportunities framework. In this paper, we analyze the answers of a sample of 1,540 individuals to the following question: Imagine that a coin will be flipped 10 times. Each time, if heads, you win 10 Euros. How many times do you think that you will win? <br />The average answer is surprisingly about 3.9 which is below the average 5, and we interpret this as a pessimistic bias. We find that women are more "pessimistic" than men, as are old people relative to young. We also analyze how our notion of pessimism is related to more general notions of pessimism previously introduced in psychology. |
| Keywords: | pessimism; judged probability; lottery |
| Date: | 2007–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00151569_v1&r=upt |