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on Utility Models and Prospect Theory |
| By: | Abeler, Johannes (University of Nottingham); Falk, Armin (University of Bonn); Goette, Lorenz (University of Geneva); Huffman, David (Swarthmore College) |
| Abstract: | A key open question for theories of reference-dependent preferences is what determines the reference point. One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based reference-dependent preferences: if expectations are high, subjects work longer and earn more money than if expectations are low. |
| Keywords: | reference points, expectations, loss aversion, risk aversion, disappointment, experiment |
| JEL: | C91 D01 D84 J22 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3939&r=upt |
| By: | Finkelstein, Amy (MIT); Luttmer, Erzo F.P. (Harvard University); Notowidigdo, Matthew J. (MIT) |
| Abstract: | If the marginal utility of consumption depends on health status, this will affect the economic analysis of a number of central problems in public finance, including the optimal structure of health insurance and optimal life cycle savings. In this paper, we describe the promises and challenges of various approaches to estimating the effect of health on the marginal utility of consumption. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed important insights on the nature of health state dependence. |
| Keywords: | state dependence, health, insurance, marginal utility |
| JEL: | D12 I1 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3925&r=upt |
| By: | Lucy F. Ackert; Ann B. Gillette; Jorge Martinez-Vazquez; Mark Rider |
| Abstract: | We use an experimental method to investigate whether systematic relationships exist across distinct aspects of individual preferences: risk aversion in monetary outcomes, altruism in a twoperson context, and social preferences in a larger group context. Individual preferences across these three contexts are measured, and there is no possibility for risk sharing, wealth effects, or updating expectations of the population choices. We find that social preferences are related to demographic variables, including years of education, gender, and age. Perhaps most importantly, self allocation in a two-person dictator game is related to social preferences in a group context. Participants who are more generous in a dictator game are more likely to vote against their selfinterest in a group decision-making task which we interpret to be expressions of social preferences. |
| JEL: | C91 C92 D63 H21 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2009-04&r=upt |
| By: | Alexandru, Ciprian Antoniade |
| Abstract: | In this paper we are preoccupied by a study of trust and loss aversion on Romanian capital market. In global financial depreciation of stocks the emergent markets are much more affected that the lack of money and investors aversion. Based on efficient market theory we study the evolution of portfolio structure in balanced funds. We are interesting to make an evaluation of present sentiment of investing money in capital markets and especially in stocks. Also, is necessary to determine which are the most important problems in this situation and seek an adequate stimulus for future development of direct investment. |
| Keywords: | portfolio structure; balanced funds; loss aversion |
| JEL: | G14 G12 G11 |
| Date: | 2008–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12778&r=upt |
| By: | Sen Gupta , Rajorshi; Vadali , Sharada R |
| Abstract: | Optimism bias is a consistent feature associated with truck toll forecasts, à la Standard & Poor’s and the NCHRP synthesis reports. Given the persistent problem, two major sources of this bias are explored. In particular, the ignorance of operating cost as a demand-side factor and lack of attention to user heterogeneity are found to contribute to this bias. To address it, stochastic dominance analysis is used to assess the risk associated with toll revenue forecasts. For a hypothetical corridor, it is shown that ignorance of operating cost savings can lead to upward bias in the threshold value of time distribution. Furthermore, dominance analysis demonstrates that there is greater risk associated with the revenue forecast when demand heterogeneity is factored in. The approach presented can be generally applied to all toll forecasts and is not restricted to trucks. |
| Keywords: | Forecast Bias; Operating costs; Risk assessment; Savings; Stochastic Dominance; Tolls;Trucks |
| JEL: | D81 C15 R41 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12891&r=upt |