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on Utility Models and Prospect Theory |
| By: | Schipper, Burkhard C |
| Abstract: | Morris (1996, 1997) introduced preference-based definitions of knowledge of belief in standard state-space structures. This paper extends this preference-based approach to unawareness structures (Heifetz, Meier, and Schipper, 2006, 2008). By defining unawareness and knowledge in terms of preferences over acts in unawareness structures and showing their equivalence to the epistemic notions of unawareness and knowledge, we try to build a bridge between decision theory and epistemic logic. Unawareness of an event is behaviorally characterized as the event being null and its negation being null. |
| Keywords: | unawareness; awareness; knowledge; preferences; subjective expected utility theory; decision theory; null event |
| JEL: | C70 D82 D80 C72 |
| Date: | 2011–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:30221&r=upt |
| By: | Luc Arrondel (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris); Hector Calvo Pardo (School of Social Sciences - Economics division - University of Southampton); Xisco Oliver (Universitat de les Illes Balears - Universitat de les Illes Balears) |
| Abstract: | We explore empirically whether earnings uncertainty and borrowing constraints deter households from the stockmarket, consistent with the predictions of theoretical studies of portfolio choice in the presence of uninsurable earnings. Recent extensions highlight the importance of the correlation between earnings and financial risks. We use a self-assessed proxy for the correlation from the DELTA-TNS 2002 cross-sectional survey. While income risk does not deter from the stockmarket those households' reporting a negative correlation, it does for those who report a non-negative sign, consistent with economic theory predictions. |
| Keywords: | portfolio choice ; background risk ; risk aversion ; prudence ; temperance |
| Date: | 2011–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00588069&r=upt |
| By: | Kaivanto, Kim; Kroll, Eike B. |
| Abstract: | We report an experiment in which subjects are not indifferent between real-money lotteries implemented with randomization devices that are equivalent under the Reduction Axiom. Instead choice behavior is consistent with subjective distortion of conditional probability, and this persists in treatment conditions that control for (i) computational limitations and (ii) possible confounding by ratio bias. -- |
| Keywords: | reduction of compound lotteries,negative recency effect,gambler's fallacy,law of small numbers,randomization devices,instruments and materials,design of experiments,St. Petersburg paradox |
| JEL: | D81 C91 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:22&r=upt |
| By: | Ariel Rubinstein (University of Tel Aviv); Uzi Segal (Boston College) |
| Abstract: | We investigate the procedure of "random sampling" where the alternatives are random variables. When comparing any two alternatives, the decision maker samples each of the alternatives once and ranks them according to the comparison between the two realizations. Our main result is that when applied to three alternatives, the procedure yields a cycle with a probability bounded above by 8/27. Bounds are also obtained for other related procedures. |
| Keywords: | Transitivity, preference formation, the paradox of nontransitive dice |
| Date: | 2011–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:773&r=upt |