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on Utility Models and Prospect Theory |
| By: | Denis Conniffe (Economics, National University of Ireland, Maynooth); |
| Abstract: | The paper examines the properties of a generalised mean of simple utilities each displaying risk aversion, that is, with first derivative positive and second derivative negative. It proves the mean is itself a valid utility function with the appropriate signs for derivatives and investigates risk aversion properties. It shows that simple component utilities, each of which may have quite restricted risk aversion properties, can be parsimoniously combined through the generalised mean formula to give a much more versatile utility function. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n1790907.pdf&r=upt |
| By: | S. Nuri Erbas; Abbas Mirakhor |
| Abstract: | With cross-section data from 53 emerging and mature markets, we provide evidence that equity premium puzzle is a global phenomenon. In addition to risk aversion, equity premium may reflect ambiguity aversion. We explore the sources of equity premium using some pertinent fundamental independent variables, as well as the World Bank institutional quality indexes and other proxies for the degree of ambiguity in the sample countries. Some World Bank and other indexes are statistically significant, which indicates that a large part of equity premium may reflect investor aversion to ambiguities resulting from institutional weaknesses. |
| Keywords: | Working Paper , Risk premium , Stock prices , |
| Date: | 2007–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/230&r=upt |
| By: | Aaron Edlin; Andrew Gelman; Noah Kaplan |
| Abstract: | For voters with "social" preferences, the expected utility of voting is approximately independent of the size of the electorate, suggesting that rational voter turnouts can be substantial even in large elections. Less important elections are predicted to have lower turnout, but a feedback mechanism keeps turnout at a reasonable level under a wide range of conditions. The main contributions of this paper are: (1) to show how, for an individual with both selfish and social preferences, the social preferences will dominate and make it rational for a typical person to vote even in large elections;(2) to show that rational socially-motivated voting has a feedback mechanism that stabilizes turnout at reasonable levels (e.g., 50% of the electorate); (3) to link the rational social-utility model of voter turnout with survey findings on socially-motivated vote choice. |
| JEL: | H0 K21 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13562&r=upt |
| By: | Rene van den Brink (Department of Econometrics and Tinbergen Institute, Faculty of Economics and Business Administration, Free University Amsterdam); Rene Levinsky (Max Planck Institute of Economics); Miroslav Zeleny (Department of Mathematical Analysis, Faculty of Mathematics and Physics, Charles University, Czech Republic) |
| Abstract: | The Shapley value of a cooperative transferable utility game distributes the dividend of each coalition in the game equally among its members. Given exogenous weights for all players, the corresponding weighted Shapley value distributes the dividends proportionally to their weights. In this contribution we deï¬ne the balanced solution which assigns weights to players such that the corresponding weighted Shapley value of each player is equal to her weight. We prove its existence for all monotone transferable utility games, discuss other properties of this solution, and deal with its characterization through a reduced game consistency. |
| Keywords: | Balanced solution, Proportionality, Reduced game consistency, Weighted Shapley value. |
| JEL: | C71 |
| Date: | 2007–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-073&r=upt |
| By: | Jose Apesteguia; Miguel A. Ballester |
| Abstract: | Extensive field and experimental evidence in a variety of environments show that behavior depends on a reference point. This paper provides an axiomatic characterization of this dependence. We proceed by imposing gradually more structure on both choice correspondences and preference relations, requiring increasingly higher levels of rationality, and freeing the decision-maker from certain types of inconsistencies. The appropriate degree of behavioral structure will depend on the phenomenon that is to be modeled. Lastly, we provide two applications of our work: one to model the status-quo bias, and another to model addictive behavior. |
| Keywords: | Individual rationality, reference-dependence, rationalization, path independence, status-quo bias, addiction, habit formation, LeeX |
| JEL: | A12 B41 D11 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1056&r=upt |