
on Utility Models and Prospect Theory 
By:  Denis Bouyssou (LAMSADE  Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision  CNRS : UMR7024  Université Paris Dauphine  Paris IX); Thierry Marchant (Department of Data Analysis  Ghent University) 
Abstract:  This paper proposes a theory of subjective expected utility based on primitives only involving the fact that an act can be judged either "attractive" or "unattractive". We give conditions implying that there are a utility function on the set of consequences and a probability distribution on the set of states such that attractive acts have a subjective expected utility above some threshold. The numerical representation that is obtained has strong uniqueness properties. 
Keywords:  Subjective Expected Utility ; Conjoint Measurement 
Date:  2011–06–14 
URL:  http://d.repec.org/n?u=RePEc:hal:wpaper:hal00606939&r=upt 
By:  Christian Kellner (University of Bonn); Gerhard Riener (University of Jena and MaxPlanck Institute of Economics, Jena) 
Abstract:  We test the implications of ambiguity aversion in a principalagent problem with multiple agents. When output distributions are uncertain, models of ambiguity aversion suggest that tournaments may become more attractive than independent wage contracts, in contrast to the case where output distributions are known. We do so by presenting agents with a choice between tournaments and independent contracts, which are designed in a way that under uncertainty about output distribution (that is, under ambiguity), ambiguity averse agents should typically prefer tournaments, while ambiguity neutral agents prefer independent contracts, independent of their degree of risk aversion. This is the case, because the tournament removes all ambiguity about the equilibrium wages. We compare the share of participants who choose the tournament under ambiguity with the share of participants choosing the tournament in a control treatment, where output distributions are know. As the theory predicts, we find indeed that under ambiguity the share of agents who choose the tournaments is higher than in the case of known output distributions. 
Keywords:  Ambiguity aversion, tournaments, Ellsberg urn, contract design 
JEL:  D01 D81 M55 
Date:  2011–07–11 
URL:  http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011033&r=upt 
By:  Gaowang Wang (Wuhan University) 
Abstract:  This paper reexamines monetary nonsuperneutrality and the optimality of the optimum quantity of money in the moneyinutility Sidrauski model with endogenous fluctuations of the time preference by introducing in?ation aversion. It is shown that the longrun superneutrality of the standard Sidrauski model does not hold, and Friedman's optimum quantity of money is not optimal. 
Keywords:  Inflation Aversion, Endogenous Time Preference, Monetary Superneutrality, Optimum Quantity of Money 
JEL:  E31 E5 O41 
Date:  2011–11 
URL:  http://d.repec.org/n?u=RePEc:cuf:wpaper:471&r=upt 
By:  Maria De Paola; Francesca Gioia (Dipartimento di Economia e Statistica, Università della Calabria) 
Abstract:  Does the choice of the field of study depend on individual risk aversion? The direction of the relationship between individual risk attitudes and type of college major chosen is potentially ambiguous. On the one hand, risk adverse individuals may prefer majors allowing high returns on the labour market; on the other hand, if these majors expose students to a higher probability of dropping out, those who are more risk adverse may be induced to choose less challenging fields. Using data from a sample of students enrolled in 2009 at a middlesized Italian public University, we find that, controlling for a large number of individual characteristics, including cognitive abilities, personality traits and family background, more risk adverse students are more likely to choose any other field (Humanities, Engineering and Sciences) compared to Social Sciences. We interpret this result considering that some of these fields, such as Humanities, allow to reduce the risk of dropping out, while others (such as Engineering and Sciences)involve a lower risk on the labour market. It also emerges that the effect of risk aversion on major choice is related to student ability. Risk adverse students characterized by high abilities tend to prefer Engineering, while the propensity of risk adverse students to enrol in Humanities decreases when ability increases, suggesting that the attention paid to labour market risks and drop out risks varies according to student skills. 
Keywords:  Risk aversion, College choice, Education 
JEL:  I21 Z13 J24 
Date:  2011–07 
URL:  http://d.repec.org/n?u=RePEc:clb:wpaper:201107&r=upt 
By:  John Duggan (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 146270158) 
Abstract:  This paper disentangles the topological assumptions of classical results (e.g., Walker (1977)) on existence of maximal elements from rationality conditions. It is known from the social choice literature that under the standard topological conditionswith no other restrictions on preferencesthere is an element such that the upper section of strict preference at that element is minimal in terms of set inclusion, i.e., the uncovered set is nonempty. Adding a condition that weakens known acyclicity and convexity assumptions, each such uncovered alternative is indeed maximal. A corollary is a result that weakens the semiconvexity condition of Yannelis and Prabhakar (1983). 
Date:  2011–07 
URL:  http://d.repec.org/n?u=RePEc:roc:rocher:563&r=upt 
By:  Denis Bouyssou (LAMSADE  Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision  CNRS : UMR7024  Université Paris Dauphine  Paris IX); Thierry Marchant (Department of Data Analysis  Ghent University) 
Abstract:  In the context of multiple attribute decision making, preference models making use of reference points in an ordinal way have recently been introduced in the literature. This text proposes an axiomatic analysis of such models, with a particular emphasis on the case in which there is only one reference point. Our analysis uses a general conjoint measurement model resting on the study of traces induced on attributes by the preference relation and using conditions guaranteeing that these traces are complete. Models using reference points are shown to be a particular case of this general model. The number of reference points is linked to the number of equivalence classes distinguished by the traces. When there is only one reference point, the in duced traces are quite rough, distinguishing at most two distinct equivalence classes. We study the relation between the model using a single reference point and other preference models proposed in the literature. 
Date:  2011–05–31 
URL:  http://d.repec.org/n?u=RePEc:hal:wpaper:hal00606942&r=upt 
By:  Astrid Gamba (Max Planck Institute of Economics, Jena, Germany) 
Abstract:  A common feature of the literature on the evolution of preferences is that evolution favors nonmaterialistic preferences only if preference types are observable at least to some degree. We argue that this result is due to the assumption that in each state of the evolutionary dynamics some Bayesian Nash equilibrium is played. We show that under unobservability of preference types, conditional on selecting some selfconfirming equilibrium as a rule for mapping preference into behavior, nonselfish preferences may be evolutionarily successful. 
Keywords:  evolution of preferences, altruism, learning, selfconfirming equilibrium 
JEL:  A13 C72 D64 D83 
Date:  2011–07–04 
URL:  http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011032&r=upt 
By:  K. Vela Velupillai 
Abstract:  Formally, the orthodox rational agentís 'Olympian' choices ([14], p.19) are made in a static framework. However, a formalization of consistent choice, underpinned by computability, suggests satisficing in a boundedly rational framework is not only more general than the model of 'Olympian' rationality; it is also consistently dynamic. This kind of naturally processoriented approach to the formalization of consistent choice can be interpreted and encapsulated within the framework of decision problems  in the formal sense of metamathematics and mathematical logic  which, in turn, is the natural way of formalizing the notion of Human Problem Solving in the NewellSimon sense. Casting Simon's insights and suggestions on boundedly rational, satisficing and adaptive choice in the formalisms of time computational complexity theory and algorithmic dynamics makes it possible to take some small first steps in the direction of a formal demonstration of this proposition. A more complete attempt would require the additional consideration of space computational complexity, which will be the next step in this research program. The latter consideration would allow one to go beyond the P?=NP conundrum and thereby justify the relative, implicit unimportance, Simon gave this issue 
Keywords:  Bounded Rationality, Decision Problems, Satisficing, Computability 
JEL:  C63 C65 C69 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:trn:utwpas:1116&r=upt 
By:  Paul Dolan; Daniel Felipe Fujiwara; Robert Metcalfe 
Abstract:  Income has a direct impact on our utility as well as an indirect impact through the goods, services and life events it allows us to purchase. The indirect effect of income is not properly accounted for in existing research that uses measures of cardinal utility for economic analysis. We propose a new approach for appropriately attributing the full effects of income on utility and we show the implications of our approach using a longitudinal dataset that contains reports of subjective wellbeing (SWB). We show that income has a much greater effect on SWB when indirect effects are considered. These results have important implications for how we value the marginal benefits of nonmarket goods and we explore some of these issues in the paper 
Keywords:  subjective wellbeing, utility, happiness, multicollinearity, income, nonmarket goods 
JEL:  A10 D6 D61 H41 I31 
Date:  2011–07 
URL:  http://d.repec.org/n?u=RePEc:cep:cepdps:dp1062&r=upt 