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on Utility Models and Prospect Theory |
| By: | Nick Netzer |
| Keywords: | Evolution of Utility, Risk Attitudes, Time Preferences |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:twi:respas:0029&r=upt |
| By: | R. Mark Isaac (Department of Economics, Florida State University); Svetlana Pevnitskaya (Department of Economics, Florida State University); Kurt Schnier (University of Rhode Island) |
| Abstract: | This paper analyzes individual bidding data from a series of first price (FP) and second price (SP) sealed-bid auctions in which the number of bidders is unknown. In SP auctions we find a substantial amount of coincidence with theory. We observe systematic deviations from risk neutral bidding in FP auctions and show theoretically that these deviations are consistent with risk averse preferences. We find essentially no heterogeneity in bidding in SP auctions where risk preferences and the number of bidders do not affect the optimal bid, while in the FP auctions heterogeneity in bidding persists and increases with experience. We conclude that heterogeneity in bidding in FP auctions is consistent with heterogeneity in risk preferences, the attempt to count the number of bidders in the auction, and bidder specific noise. (JEL D44, C91) |
| Keywords: | auctions, risk aversion |
| JEL: | D44 C91 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2008_07_02&r=upt |
| By: | Werner Güth (Max Planck Institute of Economics, Jena, Strategic Interaction Group) |
| Abstract: | Similar to welfare economics where with(out) interpersonal comparisons one defines unique (set-valued) welfare (Pareto) optima, we present a framework for one-person decision making where with(out) a prior probability distribution individual optimality prescribes usually a unique (set of) choice(s). Satisfiable aspirations in the sense that there exists some choice guaranteeing them define a much larger choice set whose intersection with the set of prior-free optimal choices is never empty. We also review experimental procedures and results which incentivize aspiration formation and reject even prior-free optimality experimentally. |
| Keywords: | Satisficing, bounded rationality, optimality |
| JEL: | B4 D81 D10 |
| Date: | 2008–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2008-055&r=upt |
| By: | Yusuke Inami (Graduate School of Economics, Kyoto University) |
| Abstract: | This paper considers second-price, sealed-bid auctions with a buy price where biddersf types are discretely distributed. We characterize all equilibria, restricting our attention to equilibria where bidders whose types are less than a buy price bid their own valuations. Budish and Takeyama (2001) analyzed the two-bidder, two-type framework, and showed that if bidders are risk-averse, a seller can obtain a higher expected revenue from the auction with a certain buy price than from the auction without a buy price. We extend their revenue improvement result to the n-bidder, two-type framework. However, in case of three or more types, biddersf risk aversion is not a sufficient condition for the revenue improvement. Our example illustrates that even if bidders are risk-averse, a seller cannot always obtain a higher expected revenue from the auction with a buy price. |
| Keywords: | Auction; Buy price; Risk aversion |
| JEL: | C72 D44 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:657&r=upt |
| By: | Takashi Kamihigashi (Research Institute for Economics and Business Administration, Kobe University) |
| Abstract: | This paper presents a representative agent model in which stock market bubbles cause output fluctuations. Assuming that utility depends directly on wealth, we show that stock market bubbles arise if the marginal utility of wealth does not decline to zero as wealth goes to infinity. Bubbles may affect output positively or negative depending on whether the production function exhibits increasing or decreasing returns to scale. In sunspot equilibria, the bursting of a bubble is followed by a sharp decline in output one period later. Various numerical examples are given to illustrate the behavior of stochastic bubbles and the relationship between bubbles and output. |
| Keywords: | Spirit of capitalism, stock market bubbles, output fluctuations, wealth in utility, sunspot equilibria |
| JEL: | E20 E32 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:205&r=upt |
| By: | Fulvio Fontini (University of Padua); Georg Umgiesser (ISMAR-CNR Venice); Lucia Vergano (University of Padua) |
| Abstract: | This paper addresses both theoretically and empirically how to deal with ambiguous decisions. We briefly discuss the most relevant decision making criteria under ambiguity proposed in the literature, as specific cases of a general functional based on NEO-capacities. Then we study the impacts on Venetian port activities of MOSE, the dam system aimed to protect the Venice Lagoon from the periodic flooding. We show that the estimated impacts depend crucially on the levels of optimism and pessimism of the decision maker and in particular they substantially di¤er from the ones calculated on the basis of the expected value framework. |
| Keywords: | Precautionary principle, Ambiguity, MOSE, NEO-Capacity, CEU |
| JEL: | D81 Q51 Q54 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0080&r=upt |