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on Utility Models and Prospect Theory |
| By: | Moez Abouda (Centre d'Economie de la Sorbonne and BESTMOD); Elyess Farhoud (Ecole Polytechnique de Tunisie and BESTMOD) |
| Abstract: | This paper focuses on the study of decision making under risk. We first recall some model-free definitions of risl aversion and increase in risk. We propose a new form of behavior under risk that we call anti-monotone risk aversion (hererafter referred to as ARA) related to the concept of anti-comonotony a concept investigated in Abouda, Aouani and Chateauneuf (2008). Note that many research has already been done in this field e.g. through the theory of comonotonicity. We give relationships between comonotone, strict comonotone, anti-comonotone and strict anti-comonotone random variables. Then, after the motivation of ARA, we show that this new aversion is weaker than monotone risk aversion while stronger than weak risk aversion. |
| Keywords: | Risk aversion, model-free concepts, comonotone, strict comonotone, anti-comonotone, strict anti-comonotone, anti-monotone risk aversion. |
| JEL: | D80 D81 G12 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:10047&r=upt |
| By: | Sergio Sousa (University of Nottingham) |
| Abstract: | This paper reports on an experiment designed to examine the effects of small-scale changes in wealth on risk attitudes. We find that the money given prior to risky choices does not induce a change of subjects' risk preferences. This result supports a key assumption in a recent literature over calibration critique of decision theories. Furthermore, as the money given to subjects in our experiment is administered in between risky tasks and framed as a reward rather than a windfall gain, our result suggests that experimental findings reporting that a prior monetary gain induces individuals to take more risks (house-money effect) may be more sensitive to prior experience with the risk-elicitation task or framing of the money than previously thought. |
| Keywords: | risk aversion, wealth effects, risk-elicitation, house-money effect, narrow framing |
| JEL: | C91 D01 D81 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2010-11&r=upt |
| By: | Kotakou, Christina A.; Katranidis, Stelios D |
| Abstract: | This paper examines the effects of decoupling policies on Greek cotton production under the hypothesis that producers face uncertainty about output price and quantity. Using our estimation results we simulate the effects on cotton production under four alternative policy scenarios: the âOldâ CAP regime (i.e. the policy practiced until 2005), the Mid Term Review regime, a fully decoupled policy regime and a free tradeno policy scenario. Our results indicate the decoupled payment will have two contradictious effects on risk aversion. Producers become less risk averse through the wealth effect but more risk averse because of the increased output variance. The overall result of these two effects depends on the degree of risk aversion by farmers. We found that when the degree of risk aversion is high the wealth effect is positive. However, in the case of low risk aversion and a wealth effect equal to zero the decoupled payments become production neutral. |
| Keywords: | Common Agricultural Policy, decoupling, uncertainty, Agricultural and Food Policy, D21, Q18, |
| Date: | 2010–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aesc10:91753&r=upt |
| By: | Thierry Chauveau (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Alexander Subbotin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | This paper studies the effects of multiple investment horizons and investors' bounded rationality on the price dynamics. We consider a pure exchange economy with one risky asset, populated with agents maximizing CRRA-type expected utility of wealth over discrete investment periods. An investor's demand for the risky asset may depend on the historical returns, so that our model encompasses a wide range of behaviorist patterns. The necessary conditions, under which the risky return can be a stationary iid process, are established. The compatibility of these conditions with different types of demand functions in the heterogeneous agents' framework are explored. We find that conditional volatility of returns cannot be constant in many generic situations, especially if agents with different investment horizons operate on the market. In the latter case the return process can display conditional heteroscedasticity, even if all investors are so-called "fundamentalists" and their demand for the risky asset is subject to exogenous iid shocks. We show that the heterogeneity of investment horizons can be a possible explanation of different stylized patterns in stock returns, in particular, mean-reversion and volatility clustering. |
| Keywords: | Asset pricing, heterogeneous agents, multiple investment scales, volatility clustering. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00497427_v1&r=upt |
| By: | Marek Giergiczny (Warsaw Ecological Economics Center, University of Warsaw); Sviataslau Valasiuk (Warsaw Ecological Economics Center, University of Warsaw); Tomasz Żylicz (Warsaw Ecological Economics Center, University of Warsaw); Pere Riera (Faculty of Economic Sciences, University of Warsaw) |
| Abstract: | Using choice experiment, this paper investigates how Belarusian citizens value planned Zvanets mire protection programmes. Two approaches are used to analyze ignored attributes: a debriefing question, and estimating parameters at the individual level. We have found inconsistencies between people’s declarations on ignoring certain attributes in the follow-up questions and the results of modelling at the individual level. These inconsistencies lead to statistically significant differences in WTP estimates obtained. |
| Keywords: | willingness to pay (WTP), choice experiment (CE), random parameter logit (RPL) model, lexicographic preferences, nature protection, wetlands |
| JEL: | Q50 Q51 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2010-08&r=upt |
| By: | M. Menegatti; D. Baiardi |
| Abstract: | The paper examines the effects of environmental uncertainty on Pigouvian tax and abatement policy used, either separately or contemporaneously, to counteract pollution. We discuss uncertainty in three aspects: environmental quality, pollution effect and the impact of abatement. For each case we determine the conditions ensuring that uncertainty increases the size of public intervention and provide an economic interpretation and some parallelisms with other risk problems. The last part of the paper generalizes some of our results to the case of N-th order risk changes. |
| Keywords: | Pigouvian tax, Abatement policies, Environment, Uncertainty, Bivariate utility |
| JEL: | H23 D81 Q5 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:par:dipeco:2010-ep04&r=upt |
| By: | Samuel N. Cohen |
| Abstract: | We study coherent risk measures which are time-consistent for multiple filtrations. We show that a coherent risk measure is time-consistent for every filtration if and only if it is one of four main types. Furthermore, if the risk measure is strictly monotone it is linear, and if the reference probability space is not atomic then it is either linear or an essential supremum. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1007.0610&r=upt |
| By: | Bellemare, Marc F. |
| Abstract: | Under the assumption that the landlord is risk-neutral and the tenant is risk-averse, sharecropping is second-best in that it trades off risk sharing and incentives. Many, however, have reported instances of reverse share tenancy, or sharecropping in which the landlord is considerably poorer than the tenant. This note shows that reverse share tenancy is impossible under the canonical Stiglitzian model of sharecropping but becomes possible if and only if (i) both the landlord and the tenant can be assumed risk-averse; or (ii) there exist significant transactions costs making sharecropping more desirable than either a wage or fixed rent contract. |
| Keywords: | Sharecropping; Reverse Share Tenancy; Transactions Cost |
| JEL: | D23 D86 Q12 O12 |
| Date: | 2009–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23681&r=upt |
| By: | Oksana Tokarchuk; Roberto Gabriele |
| Abstract: | Experimental results in research on time preference are often controversial. We propose a systematic investigation of choice task in multiple price list format (MPL) that is frequently implemented in experiments on time preference, through a computer simulation analysis. We conduct experiments with articial subjects to demonstrate that elicited discount rates are highly dependent on the structure of elicitation task. We verify that implementation of choice task in MPL with nominal structure results in observation of hyperbolic discounting. Choice task in MPL with interest rates structure leads to elicitation of discount rates compatible with exponential discounting. Moreover, we show that the magnitude and intensity of corresponding pattern in data depends on the internal structure of elicitation task. Comparison between discount rates elicited with articial and human subjects suggests that behavior of human subjects in experiments with MPL can be described by two simple rules: positive discounting and anchoring. |
| Keywords: | elicitation task bias, time preference, choice task, multiple price list, articial agent simulations |
| JEL: | D91 C63 |
| Date: | 2010–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2010/12&r=upt |