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on Utility Models and Prospect Theory |
| By: | JÃÂÃÂÃÂürgen Eichberger (University of Heidelberg, Department of Economics); David Kelsey (University of Exeter, School of Business and Economics) |
| Abstract: | Ambiguity refers to a decision situation under uncertainty when there is incomplete information about the likelihood of events. Different formal models of this notion have been developed with differing implications about the representation of ambiguity and ambiguity aversion. |
| Keywords: | uncertainty, ambiguity, ambiguity attitude |
| JEL: | D81 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0448&r=upt |
| By: | Dannenberg, Astrid; Riechmann, Thomas; Sturm, Bodo; Vogt, Carsten |
| Abstract: | We present a simple two-steps procedure for a within-subject test of the inequity aversion model of Fehr and Schmidt (1999). In the first step, subjects played modified ultimatum and dictator games and were classified according to their preferences. In the second step, subjects with specific preferences according to the Fehr and Schmidt model were matched into pairs and interacted with each other in a standard public good game and a public good game with punishment possibility. Our results show that the specific composition of groups significantly influences the subjectsÃÂâÃÂÃÂÃÂàperformance in the public good games. We identify the aversion against advantageous inequity and the information about the coplayerÃÂâÃÂÃÂÃÂÃÂs type as the main influencing factors for the behavior of subjects. |
| Keywords: | individual preferences, inequity aversion, experimental economics, public goods |
| JEL: | C91 C92 H41 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:5693&r=upt |
| By: | Craig Burnside; Martin S. Eichenbaum; Sergio Rebelo |
| Abstract: | High-interest-rate currencies tend to appreciate relative to low-interest-rate currencies. We argue that adverse-selection problems between participants in foreign exchange markets can account for this 'forward premium puzzle.' The key feature of our model is that the adverse selection problem facing market makers is worse when, based on public information, a currency is expected to appreciate. |
| JEL: | E30 F31 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13278&r=upt |
| By: | John Bone; John D Hey; John Suckling |
| Abstract: | We report the results of an experimental investigation of a key axiom of economic theories of dynamic decision making ÃÂâÃÂÃÂÃÂànamely, that agents plan. Inferences from previous investigations have been confounded with issues concerning the preference functionals of the agents. Here, we present an innovative experimental design which is driven purely by dominance: if preferences satisfy dominance, we can infer whether subjects are planning ahead. We implement two sets of experiments: the first (the Individual Treatment) in which the same player takes decisions both in the present and the future; and the second the Pairs Treatment) in which different players take decisions at different times. In both contexts, according to economic theory, the players in the present should anticipate the decision of the player in the future. We find that over half the participants in both experimental treatments do not appear to be planning ahead; moreover, their ability to plan ahead does not improve with experience. These findings identify an important lacuna in economic theories, both for individual behaviour and for behaviour in games. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:06/22&r=upt |
| By: | Danijela MiloÃÂàÃÂá (Faculty of Economics and Business, University of Zagreb) |
| Abstract: | According to the Capital Asset Pricing Model and the Modigliani-Miller theorem, corporate risk management is irrelevant to the value of the firm. However, it is apparent that managers are constantly engaged in hedging activities that are directed at the reduction of corporate risks. As an explanation for this clash between theory and practice, imperfections in the capital market are used to argue for the relevance of corporate risk management function. This paper analyses corporate risk management practices and decision to hedge in large Croatian non-financial companies. It explores if decision to hedge corporate risks in the analysed companies is a function of several firmÃÂâÃÂÃÂÃÂÃÂs characteristics that have been proven as relevant in making risk management decisions. |
| Keywords: | corporate risk management decision, hedging rationales, shareholder value maximisation, managersÃÂâÃÂÃÂÃÂàprivate utility maximisation, large Croatian non-financial companies |
| JEL: | G32 G39 |
| Date: | 2007–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:zag:wpaper:0713&r=upt |