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on Utility Models and Prospect Theory |
| By: | Falk, Armin (University of Bonn); Zimmermann, Florian (University of Bonn) |
| Abstract: | This paper studies how a preference for consistency can affect economic decision-making. We propose a two-period model where people have a preference for consistency because consistent behavior allows them to signal personal and intellectual strength. We then present three experiments that study main predictions and implications of the model. The first is a simple principal-agent experiment that shows that consistency is valued by others and that this value is anticipated. The second experiment underlines the crucial role of early commitment for consistency preferences. Finally we show how preferences for consistency can be used to manipulate choices. |
| Keywords: | consistency preferences, experiments, early commitment, charitable giving, social influence |
| JEL: | C91 D64 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5840&r=upt |
| By: | Jouini, Elyès; Napp, Clotilde |
| Abstract: | In this paper, we show that behavioral features can be obtained at a group level when the individuals of the group are heterogeneous enough. More precisely, starting from a standard model of Pareto optimal allocations, with expected utility maximizers and exponential dis- counting, but allowing for heterogeneity among agentsíbeliefs and time preference rates, we show that the representative agent exhibits interesting behavioral properties. In particular, we obtain an inverse S-shaped probability distribution weighting function and hyperbolic discounting. We provide possible interpretation as well as applications for this result. |
| Keywords: | Hyperbolic Discounting; Behavioral Agent; Neurofinance; Representative Agent; Probability Weighting Function; |
| JEL: | D87 H43 D84 D81 G11 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/2319&r=upt |
| By: | Erhan Bayraktar; Ross Kravitz |
| Abstract: | We investigate the continuity of expected exponential utility maximization with respect to perturbation of the Sharpe ratio of markets. By focusing only on continuity, we impose weaker regularity conditions than those found in the literature. Specifically, for markets of the form $S = M + \int \lambda d<M>$, we require a uniform bound on the norm of $\lambda \cdot M$ in a suitable $bmo$ space. |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1107.2716&r=upt |
| By: | Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Alicja Pluta |
| Abstract: | Legal realists expect prosecutors to be selfish. If they get the defendant convicted, this helps them advance their careers. If the odds of winning on the main charge are low, prosecutors have a second option. They can exploit the ambiguity of legal doctrine and charge the defendant for vaguely defined crimes, like “conspiracy”. We model the situation as a signalling game and test it experimentally. If we have participants play the naked game, at least a minority plays the game theoretic equilibrium and use the vague rule if a signal indicates that the defendant is guilty. This becomes even slightly more frequent if a misbehaving defendant imposes harm on a third participant. By contrast if we frame the situation as a court case, almost all prosecutors take the signal at face value and knowingly run the risk of loosing in court if the signal was false. Our experimental prosecutors behave like textbook legal idealists, and follow the urge of duty. |
| Keywords: | Risk aversion, prosecution, doctrinal ambiguity, vaguely defined crimes, duty, DOSPERT |
| JEL: | D63 C72 K42 C91 K14 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2011_14&r=upt |
| By: | Gloede, Oliver; Menkhoff, Lukas; Waibel, Hermann |
| Abstract: | Are responses to a simple survey item sufficiently reliable in eliciting risk attitudes? Our angle in examining reliability is to conduct comparative research across Thailand and Vietnam. We find, first, that the survey item is informative about individual risk attitude because it is plausibly related to socio-demographic characteristics (including vulnerability), it is experimentally validated and has some predictive power. Second, however, we find major differences between both countries: whereas explained variances of regressions are tentatively higher in Vietnam, the predictive value of the survey item is much lower than in Thailand. Therefore, the survey item cannot be implemented across countries in an unreflected way. -- |
| Keywords: | risk attitude,socio-economic survey,household behavior,field experiment |
| JEL: | O1 R2 C93 D81 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec11:33&r=upt |
| By: | Nicolas Jacquemet (Centre d'Economie de la Sorbonne - Paris School of Economics); Adam Zylbersztejn (Centre d'Economie de la Sorbonne) |
| Abstract: | In experiments based on the Beard and Beil (1994) game, second movers very often fail to select the decision that maximizes both players payoff. This note reports on a new experimental treatment, in which we neutralize the potential effect of inequality aversion on the likelihood of this behavior. We show this behavior is robust to this change, even after allowing for repetition-based learning. |
| Keywords: | Coordination failure, laboratory experiments, aversion to inequality. |
| JEL: | C72 D83 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:11036&r=upt |
| By: | Alessandro Tarozzi; Aprajit Mahajan |
| Abstract: | Economists have recently argued that time inconsistency may play a central role in explaining inter-temporal behavior, particularly among poor households. However, time-preference parameters are typically not identified in standard dynamic choice models and little is known about the fraction of inconsistent agents in the population. We formulate a dynamic discrete choice model in an unobservedly heterogeneous population of possibly time-inconsistent agents motivated by specifically collected information combined with a field intervention in rural India. We identify and estimate all time-preference parameters as well as the population fractions of time-consistent and "naive" and "sophisticated" time-inconsistent agents. We estimate that time-inconsistent agents account for more than half of the population and that "sophisticated" inconsistent agents are considerably more present-biased than their "naive" counterparts. We also examine whether there are other differences across types (e.g. in risk and cost preferences) and find that these differences are small relative to the differences in time preferences. |
| Keywords: | Malaria, Expectations, Bednets, Identication, Dynamic Programming, Discrete Choice, Time Inconsistency |
| JEL: | I1 I3 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:duk:dukeec:11-14&r=upt |