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on Utility Models and Prospect Theory |
| By: | Astrid Matthey (Max-Planck-Institute of Economics) |
| Abstract: | In economic theory, utility depends on past, present and future outcomes. The experiment described in this paper suggests that utility also depends on people's attitudes, and that it can easily be manipulated through these attitudes. The results imply, ?rst, that purely outcome-based models of individual utility may be incomplete. Second, that reference-states are not determined completely endogenously but can be influenced from outside. And third, that experiments in economics may be sensitive to subtle details of the experimental design. |
| Keywords: | utility, reference state, attitudes, priming, experiment |
| JEL: | D01 D10 C91 |
| Date: | 2008–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2008-044&r=upt |
| By: | Dominique, C-Rene |
| Abstract: | SUMMARY: This note reviews consumers’ preference orderings in economics and shows that irrationality is a poor explanation for apparent violations of some axioms of order. Apparent violations seem to be better explained by the fact that consumers’ utility functions, if they exist at all, might not even belong to the class of quasi-concave functions. However, the main task of markets is the determination of equilibrium price vectors. The note shows in addition that, in Walrasian structures, quasi-concave utility functions are unnecessary for the determination of equilibrium price vectors. |
| Keywords: | Walrasian structures; preference orderings; irrationality; utility functions; and equilibrium price vectors. |
| JEL: | A1 A10 A14 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8906&r=upt |
| By: | Mezzetti, Claudio (Department of Economics, University of Warwick) |
| Abstract: | Many empirical studies of auctions show that prices of identical goods sold sequentially follow a declining path. Declining prices have been viewed as an anomaly, because the theoretical models of auctions predict that the price sequence should either be a martingale (with independent signals and no informational externalities), or a submartingale (with a¢ liated signals). This paper shows that declining prices, the afternoon effect, arise naturally when bidders are averse to price risk. A bidder is averse to price risk if he prefers to win an object at a certain price, rather than at a random price with the same expected value. When bidders have independent signals and there are no informational externalities, only the effect of aversion to price risk is present and the price sequence is a supermartingale. When there are informational externalities, even with independent signals, there is a countervailing, informational effect, which pushes prices to raise along the path of a sequential auction. This may help explaining the more complex price paths we observe in some auctions |
| Keywords: | Afternoon Effect ; Declining Price Anomaly ; Efficient Auctions ; Multi-Unit Auctions ; Price Risk ; Revenue Equivalence ; Risk Aversion ; Sequential Auctions |
| JEL: | D44 D82 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:857&r=upt |
| By: | Marta Cardin (Department of Applied Mathematics, University of Venice); Elisa Pagani (Department of Quantitative Methods, University Bicocca of Milan) |
| Abstract: | In actuarial literature the properties of risk measures or insurance premium principles have been extensively studied. In our work we propose a characterization of some particular classes of multivariate and bivariate risk measures. Given two random variables we can define an univariate integral stochastic ordering by considering a set of functions that, through their peculiar properties, originate different stochastic orderings. These stochastic order relations of integral form may be extended to cover also the case of random vectors. It is, in fact, proposed a kind of stop-loss premium, and then a stop-loss order in the multivariate setting and some equivalent conditions. We propose an axiomatic approach based on a minimal set of properties which characterizes an insurance premium principle. In the univariate case we know that Conditional Value at Risk can be represented through distortion risk measures and a distortion risk measure can be viewed as a combination of CVaRs, we propose a generalization of this result in a multivariate framework. In the bivariate case we want to compare the concept of risk measure to that one of concordance measure when the marginals are given. |
| JEL: | D81 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:vnm:wpaper:165&r=upt |
| By: | Dohmen, Thomas J; Falk, Armin; Huffman, David; Sunde, Uwe |
| Abstract: | Recent theoretical contributions depart from the usual practice of treating individual attitude endowments as a black box, by assuming that these are shaped by the attitudes of parents and other role models. Attitudes include fundamental preferences such as risk preference, and crucial beliefs about the world, such as trust. This paper provides evidence on the three main mechanisms for attitude transmission highlighted in the theoretical literature: (1) transmission of attitudes from parents to children; (2) positive assortative mating of parents, which tends to reinforce the impact of parents on the child; (3) an impact of prevailing attitudes in the local environment. Investigating these mechanisms is important because they are crucial assumptions underlying a large literature. It also sheds light on the basic question of where individual attitude endowments come from, and the factors that determine these drivers of economic behaviour. The findings are supportive of attitude transmission models, and indicate that all three mechanisms play a role in shaping economically relevant attitudes. |
| Keywords: | Assortative Mating; Cultural Economics; Family Economics; Intergenerational Transmission; Risk Preferences; Social Interactions; SOEP; Trust |
| JEL: | D1 D8 J12 J13 J62 Z13 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6844&r=upt |