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on Utility Models and Prospect Theory |
| By: | Harin, Alexander |
| Abstract: | The theorems of existence of the ruptures have been proved. The ruptures can exist near the borders of finite intervals and of the probability scale. The theorems can be used, e.g., in economics and forecasting. |
| Keywords: | probability; economics; forecasting; planning; modeling; modelling; simulation; utility; decisions; uncertainty; |
| JEL: | G11 D81 O2 H3 C1 E47 |
| Date: | 2010–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23319&r=upt |
| By: | Volker Krätschmer; Henryk Zähle |
| Abstract: | A simple and commonly used method to approximate the total claim distribution of a (possible weakly dependent) insurance collective is the normal approximation. In this article, we investigate the error made when the normal approximation is plugged in a fairly general distribution-invariant risk measure. We focus on the rate of the convergence of the error relative to the number of clients, we specify the relative error’s asymptotic distribution, and we illustrate our results by means of a numerical example. Regarding the risk measure, we take into account distortion risk measures as well as distribution-invariant coherent risk measures. |
| Keywords: | total claim distribution, [phi]- and [alpha]-mixing sequences of random variables, normal approximation, nonuniform Berry-Esseen inequality, distortion risk measure, coherent risk measure, robust representation |
| JEL: | G22 G32 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2010-033&r=upt |
| By: | Moez Abouda (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, BESTMOD - Institut Supérieur de Gestion de Tunis); Elyess Farhoud (BESTMOD - Institut Supérieur de Gestion de Tunis, Ecole Polytechnique de Tunisie - EPT) |
| Abstract: | This paper belongs to the study of decision making under risk. We will be interested in modeling the behavior of decision makers (hereafter referred to as DM) when they are facing risky choices. We first introduce both the general framework of decision making problem under risk and the different models of choice under risk that are well recognized in the literature. Then, we review different concepts of some increase in risk and risk aversion that are valid independently of any representation. We will introduce two new forms of behaviors under risk namely weak weak risk aversion and anti-monotone risk aversion. Note that the latter is related to anti-comonotony (a concept investigated in Abouda, Aouani and Chateauneuf (2008)) and represents a halfway between monotone and weak risk aversion. Finally, we discuss the relationships -in model-free- among some of these behaviors. |
| Keywords: | Risk aversion, anti-comonotone, SMRA, MRA, ARA, WWRA. |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00492170_v1&r=upt |
| By: | Kaito Sato |
| Abstract: | In Anscombe and Aumann’s (1963) domain, there are two types of mixtures. One is an ex–ante mixture, or a lottery on acts. The other is an ex–post mixture, or a state–wise mixture of acts. These two mixtures have been assumed to be indifferent under the Reversal of Order axiom. However, we argue that the difference between these two mixtures is crucial in some important contexts. Under ambiguity aversion, an ex–ante mixture could provide only ex–ante hedging but not ex–post hedging. Under inequality aversion, an ex–ante mixture could provide only ex–ante equality but not ex–post equality. For each context, we develop a model that treats a preference for ex–ante mixtures separately from a preference for ex–post mixtures. One representation is an extensionof Gilboa and Schmeidler’s (1989) Maxmin preferences. The other representation is an extension of Fehr and Schmidt’s (1999) Piecewise–linear preferences. In both representations, a single parameter characterizes a preference for ex–ante mixtures. For the both representations, instead of the Reversal of Order axiom, we propose a weaker axiom, the Indifference axiom, which is a criterion, suggested in Raiffa’s (1961) critique, for evaluating lotteries on acts. These models are consistent with much recent experimental evidence in each context. |
| Keywords: | Ambiguity; randomization; Ellsberg paradox; other–regarding preferences; inequality; maxmin utility. |
| JEL: | D81 |
| Date: | 2010–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1489&r=upt |
| By: | Arnab Bhattacharjee; Jie Hany |
| Abstract: | If choices depend on the decision maker's mood, is the attempt to derive any consistency in choice doomed? In this paper we argue that, even with full unpredictability of mood, the way choices from a menu relate to choices from another menu exhibits some structure. We present two alternative models of moody choice. and show that, in either of them, not all choice patterns are possible. Indeed, we characterise both models in terms of consistency requirements of the observed choice data. |
| Keywords: | Bounded rationality, procedural rationality, utility maximization, choice behavior. |
| JEL: | D01 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:san:crieff:1002&r=upt |
| By: | Eisenhuth, Roland |
| Abstract: | Auctioneers who have an indivisible object for sale and believe that bidders are risk neutral can find the recipe for an optimal auction in Myerson (1981); auctioneers who believe that bidders are loss averse can find it here: An optimal auction is an all pay auction with minimum bid, and any optimal mechanism is all pay. |
| Keywords: | Auctions; Loss Aversion; All Pay Mechanisms; Mechanism Design; Revenue Equivalence |
| JEL: | D86 D81 D44 C70 |
| Date: | 2010–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23357&r=upt |
| By: | Sonia Akter (Crawford School of Economics and Government, the Australian National University); Jeff Bennett (Crawford School of Economics and Government, the Australian National University) |
| Abstract: | The numerical certainty scale (NCS) and polychotomous choice (PC) methods are two widely used techniques for measuring preference uncertainty in contingent valuation (CV) studies. The NCS follows a numerical scale and the PC is based on a verbal scale. This paper presents results of two experiments that use these preference uncertainty measurement techniques. The first experiment was designed to compare and contrast the uncertainty scores obtained from the NCS and the PC method. The second experiment was conducted to test a preference uncertainty measurement scale which combines verbal expressions with numerical and graphical interpretations: a composite certainty scale (CCS). The construct validity of the certainty scores obtained from these three techniques was tested by estimating three separate ordered probit regression models. The results of the study can be summarized in three key findings. First, the PC method generates a higher proportion of ‘Yes’ responses than the conventional dichotomous choice elicitation format. Second, the CCS method generates a significantly higher proportion of certain responses than the NCS and the PC methods. Finally, the NCS method performs poorly in terms of construct validity. We conclude that, overall, the verbal measures perform better than the numerical measure. Furthermore, the CCS method is promising in measuring preference uncertainty in CV studies. However, further empirical applications are required to develop a better understanding of its strengths and the weaknesses. |
| Keywords: | Preference uncertainty, contingent valuation, numerical certainty scale, polychotomous choice method, composite certainty scale, climate change, Australia |
| JEL: | Q51 Q54 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:eenhrr:0946&r=upt |