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on Utility Models and Prospect Theory |
| By: | Kota Saito |
| Date: | 2010–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:661465000000000094&r=upt |
| By: | Manzini, Paola (University of St. Andrews); Mariotti, Marco (University of St. Andrews) |
| 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: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5005&r=upt |
| By: | Fujikawa, Takemi; Kobayashi, Yohei |
| Abstract: | This paper experimentally studies the effects of background music and sound on the preference of the decision makers for rewards in pairwise intertemporal choice tasks and lottery choice tasks. The participants took part in the current experiment, involving four treatments: (1) the familiar music treatment; (2) the unfamiliar music treatment; (3) the noise treatment and (4) the no music treatment. The experimental results confirm that background noise affects human performance in decision making under risk and intertemporal decision making, though the results do not indicate the significant familiarity effect that is a change of the preference in the presence of familiar background music and sound. |
| Keywords: | Allais-type preferences; choice under risk; intertemporal choice; the familiarity effect |
| JEL: | C91 |
| Date: | 2010–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23374&r=upt |
| By: | A. Magi |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:706&r=upt |
| By: | Manzini, Paola (University of St. Andrews); Mariotti, Marco (University of St. Andrews) |
| Abstract: | We study a psychologically based foundation for choice errors. The decision maker applies a preference ranking after forming a 'consideration set' prior to choosing an alternative. Membership of the consideration set is determined both by the alternative specific salience and by the rationality of the agent (his general propensity to consider all alternatives). The model turns out to include a logit formulation as a special case. In general, it has a rich set of implications both for exogenous parameters and for a situation in which alternatives can affect their own salience (salience games). Such implications are relevant to assess the link between 'revealed' preferences and 'true' preferences: for example, less rational agents may paradoxically express their preference through choice more truthfully than more rational agents. |
| Keywords: | discrete choice, random utility, logit model, consideration sets, bounded rationality |
| JEL: | D0 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5006&r=upt |
| By: | David E. Allen; Michael McAleer (University of Canterbury); Marcel Scharth |
| Abstract: | In this paper we document that realized variation measures constructed from high- frequency returns reveal a large degree of volatility risk in stock and index returns, where we characterize volatility risk by the extent to which forecasting errors in realized volatility are substantive. Even though returns standardized by ex post quadratic variation measures are nearly gaussian, this unpredictability brings considerably more uncertainty to the empirically relevant ex ante distribution of returns. Carefully modeling this volatility risk is fundamental. We propose a dually asymmetric realized volatility (DARV) model, which incorporates the important fact that realized volatility series are systematically more volatile in high volatility periods. Returns in this framework display time varying volatility, skewness and kurtosis. We provide a detailed account of the empirical advantages of the model using data on the S&P 500 index and eight other indexes and stocks. |
| Keywords: | Realized volatility; volatility of volatility; volatility risk; value-at-risk; forecasting; conditional heteroskedasticity |
| Date: | 2010–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:10/26&r=upt |
| By: | Myong-Il Kang; |
| Abstract: | This paper investigates whether the consumption-free two-beta intertemporal capital asset-pricing model developed by Campbell and Vuolteenaho (2004) is able to solve the risk premium puzzle in the Japanese stock market over the period 1984−@2002. Using the cash flow and discount rate betas as risk factors, themodel is able to explain about half of the market returns by selection of suitabe vector autoregression variables. On this basis, the model proposed solves therisk premium puzzle in Japan, thereby suggesting that Japanese investors are lessrisk averse than US investors. However, a model including only the cash flow beta better explains returns than a model with both betas. The analysis also tests and rejects the simple capital asset-pricing model in Japan. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0783&r=upt |
| By: | Xu, Yongsheng; Yoshihara, Naoki |
| Abstract: | Conditions α and β are two well-known rationality conditions in the theory of rational choice. This paper examines the implication of weaker versions of these two rationality conditions in the context of solutions to non-convex bargaining problems. It is shown that, together with the standard axioms of efficiency, anonymity and scale invariance, they characterize the Nash solution. This result makes a further connection between solutions to non-convex bargaining problems and rationalizability of choice functions in the theory of rational choice. |
| JEL: | C71 C78 D63 D71 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hituec:a537&r=upt |