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on Utility Models and Prospect Theory |
| By: | Treich, Nicolas |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:ner:toulou:http://neeo.univ-tlse1.fr/2866/&r=upt |
| By: | T M Niguez; Ivan Paya; D Peel; J Perote |
| Abstract: | Economic growth models under uncertainty and rational agents with CRRA utility have been shown to provide quite fragile explanations of consumers.choice as equlib- rium comsumption paths (expected utility) are drastically dependant on distributional assumptions. We show that assuming a SNP distribution for random consumption provides stability to general equilibrium models as expected utility exists for any value of the marginal rate of substitution over time. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:2129&r=upt |
| By: | Cho, In Soo |
| Abstract: | This paper examines the extent to which differences in risk preferences between men and women explain why women have a lower entrepreneurship rate, earn less, and work fewer hours than men. Data from the NLSY79 confirms previous findings that women are more risk averse than men. However, while less risk averse men tend to become self-employed and more risk averse men are likely to choose paid-employment, there is no significant effect of risk preferences on women’s entrepreneurship decisions. Similarly, more risk aversion is associated with higher earnings for male entrepreneurs, but it has no effect on female entrepreneurial earnings. Rising rates of risk aversion lower earnings for women, consistent with theoretical effects of risk preferences on labor earnings, but the effects are of modest magnitude. Risk preferences do not explain variation in hours of work for either men or women. These findings suggest that widely reported differences in risk preferences across genders play only a trivial role in explaining differences in labor market outcomes between men and women. |
| Keywords: | risk aversion; earnings; labor supply; gender gap; self-employment; Blinder-Oaxaca decomposition |
| JEL: | J16 J22 J24 J31 |
| Date: | 2011–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:34651&r=upt |
| By: | Booth, Alison L.; Cardona Sosa, Lina; Nolen, Patrick |
| Abstract: | Single-sex classes within coeducational environments are likely to modify students' risk-taking attitudes in economically important ways. To test this, we designed a controlled experiment using first year college students who made choices over real-stakes lotteries at two distinct dates. Students were randomly assigned to classes of three types: all female, all male, and coeducational. They were not allowed to change group subsequently. We found that women are less likely to make risky choices than men at both dates. However, after eight weeks in a single-sex environment, women were significantly more likely to choose the lottery than their counterparts in coeducational groups. These results are robust to the inclusion of controls for IQ and for personality type, as well as to a number of sensitivity tests. Our findings suggest that observed gender differences in behaviour under uncertainty found in previous studies might partly reflect social learning rather than inherent gender traits. |
| Keywords: | cognitive ability; gender; risk preferences; single-sex groups |
| JEL: | C9 C91 C92 D01 D80 J16 J24 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8690&r=upt |
| By: | Baltzer, Markus; Stolper, Oscar; Walter, Andreas |
| Abstract: | We analyze the effect of geographic proximity on individual investors' portfolio choice. Using a unique data set which covers the common stockholdings of private households at regional banks in Germany, we document strong and consistent overinvestment in geographically close companies. Our results conclusively reject the presence of an informational advantage ('home-field advantage') of local over non-local investors. Instead, households' preference for local equity turns out to be familiarity-driven. We conclude that individual investors' local bias is induced by ambiguity aversion in the portfolio selection process rather than a trading strategy based on superior information about local companies. -- |
| Keywords: | local bias,portfolio diversification,household finance,investor behaviour,ambiguity aversion |
| JEL: | G01 G11 G14 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:201123&r=upt |
| By: | Haoran He; Peter Martinsson; Matthias Sutter |
| Abstract: | In an experiment, we study risk-taking of cohabitating student couples, finding that couples’ decisions are closer to risk-neutrality than single partners’ decisions. This finding is similar to earlier experiments with randomly assigned groups, corroborating external validity of earlier results. |
| Keywords: | Risk experiment, Student couples, Group decision making |
| JEL: | C91 C92 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2011-27&r=upt |
| By: | Barelli, Paulo; Galanis, Spyros |
| Abstract: | Brandenburger et al. (2008) establish epistemic foundations for rationality and common assumption of rationality (RCAR), where rationality includes admissibility, using lexicographic type structures. Their negative result that RCAR is empty whenever the type structure is complete and continuous suggests that iterated admissibility (IA) requires players to have prior knowledge about each other, and therefore is a strong solution concept, not at the same level as iterated elimination of strongly dominated strategies (IEDS). We follow an alternative approach using standard type structures and show that IA can be generated in a complete and continuous type structure. A strategy is event-rational if it is a best response to a conjecture, as usual, and in addition it passes a “tie-breaking†test based on a set E of strategies of the other player. Event-rationality and common belief in event-rationality (RCBER) is characterized by a solution concept we call hypo-admissible sets and, in a complete structure, generates the strategies that are admissible and survive the iterated elimination of strongly dominated strategies (Dekel and Fudenberg (1990)). Extending event-rationality by adding what a player is certain about the other’s strategies as a tie-breaking set to each round of mutual belief we get common belief of extended event-rationality (RCBeER), which generates a more restrictive solution concept than the SAS (Brandenburger et al. (2008)) and in a complete structure produces the IA strategies. Contrary to the negative result in Brandenburger et al. (2008), we show that RCBER and RCBeER are nonempty in complete, continuous and compact type structures, therefore providing an epistemic criterion for IA <br><br> Keywords; epistemic game theory, admissibility, iterated weak dominance, common knowledge, rationality, completeness |
| Date: | 2011–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:stn:sotoec:71037&r=upt |
| By: | Giuseppe Benedetti; Luciano Campi; Jan Kallsen; Johannes Muhle-Karbe |
| Abstract: | For utility maximization problems under proportional transaction costs, it has been observed that the original market with transaction costs can sometimes be replaced by a frictionless "shadow market" that yields the same optimal strategy and utility. However, the question of whether or not this indeed holds in generality has remained elusive so far. In this paper we present a counterexample which shows that shadow prices may fail to exist. On the other hand, we prove that short selling constraints are a sufficient condition to warrant their existence, even in very general multi-currency market models with possibly discontinuous bid-ask-spreads. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1111.6633&r=upt |
| By: | Emily Oster; Ira Shoulson; E. Ray Dorsey |
| Abstract: | We use novel data to study the decision to undergo genetic testing by individuals at risk for Huntington disease (HD), a hereditary neurological disorder that reduces healthy life expectancy to about age 50. Although genetic testing is perfectly predictive and carries little financial or time cost, less than 10 percent of at-risk individuals are tested prior to the onset of symptoms. Testing rates are higher for individuals with higher ex ante risk of carrying the genetic expansion for HD. Untested individuals express optimistic beliefs about their probability of having HD and make fertility, savings, labor supply, and other decisions as if they do not have HD, even though individuals with confirmed HD behave quite differently. We show that these facts are qualitatively consistent with a model of optimal expectations (Brunnermeier and Parker, 2005) and can be reconciled quantitatively in this model with reasonable parameter values. This model nests the neoclassical framework and, we argue, provides strong evidence rejecting the assumptions of that framework. Finally, we briefly develop policy implications. |
| JEL: | D81 D84 I12 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17629&r=upt |
| By: | Alexandru Cojocaru (University of Maryland) |
| Abstract: | This paper examines the link between inequality and individual well-being using household survey data from 27 Transition Economies, where income inequality increased considerably since 1989. A test of inequality aversion in individual preferences that draws on the Fehr and Schmidt (QJE, 1999) specification of inequality aversion is proposed, and the difficulties of implementing it in a non-experimental setting are discussed. Estimates based on this model confirm aversion to inequality both in the overall sample and in the regional sub-samples. The Gini index, on the other hand, is unable to capture this negative effect of inequality on well-being. Notably, inequality aversion is not intrinsic. Rather, it appears to be tied to a concern with the fairness of the institutions underlying the distribution of fortunes in society. The evidence is suggestive of inequality of opportunity driving attitudes toward overall inequality. Perceiving inequality to be unfair is also associated with calls for strong government involvement in redistributive policies. |
| Keywords: | inequality aversion, relative deprivation, subjective well-being, transition economies. |
| JEL: | D63 I32 P20 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2011-238&r=upt |
| By: | Amnon Levy (University of Wollongong) |
| Abstract: | This paper introduces photosynthesis into the motion-equation of the atmospheric stock of carbon-dioxide as a counterpart endogenous factor to emissions of this principal greenhouse gas from lands occupied by humans. By doing so, the paper links the stock of atmospheric carbon-dioxide, hence climate-change and uncertainty, to the allocation of usable land to humans and forest. The public planners can control this allocation and, consequently, the atmospheric stock of carbon-dioxide, climate-change and future usable land by setting land-rates in accordance with use. The analysis considers two types of land-use for expected utility maximizing humans and derives the effects of the land-rates and photosynthesis’ efficiency on the size of the forest. |
| Keywords: | Carbon Emissions; Photosynthesis; Climate-Change; Expected Utility; Land-Rates; Forest Size |
| JEL: | Q52 Q54 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp11-08&r=upt |
| By: | Simona Sacchi; Luca Stanca |
| Abstract: | Recent studies show that, while losses loom larger than equivalent non-gains, gains loom larger than equivalent non-losses. This finding, at odds with the loss aversion principle, has been interpreted within the framework of regulatory focus theory. In this study, we explore the causal effect of regulatory focus on the asymmetric perception of gains vs non-losses and losses vs non-gains. We examine the perceived effects of both hypothetical and actual changes in monetary wealth, while orthogonally manipulating framing, valence, and regulatory focus. We find a significant interaction between the three factors. The gain vs non-loss asymmetry in perceived satisfaction is stronger in promotion focus, while the loss vs non-gain asymmetry in perceived dissatisfaction is stronger in prevention focus. The results suggest that the effects of incentives framed in terms of (non)gains and (non)losses, depend on their congruence with the individual’s motivational state. |
| Keywords: | Loss-gain asymmetry, regulatory focus, prospect theory, subjective value |
| JEL: | C91 D81 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:214&r=upt |
| By: | Chambers, Christopher P. (Department of Economics, University of California); Miller, Alan D. (Faculty of Law and Department of Economics, University of Haifa) |
| Abstract: | We introduce an ordinal model of efficiency measurement. Our primitive is a notion of efficiency that is comparative, but not cardinal or absolute. In this framework, we postulate axioms that we believe an ordinal efficiency measure should satisfy. Primary among these are choice consistency and planning consistency, which guide the measurement of efficiency in a firm with access to multiple technologies. Other axioms include symmetry, which states that the names of commodities do not matter, scale-invariance, which says that units of measurement of commodities does not matter, and strong monotonicity, which states that efficiency should decrease if the inputs and outputs remain static when the technology becomes unambiguously more efficient. These axioms characterize a unique ordinal efficiency measure which is represented by the coefficient of resource utilization. By replacing symmetry (the weakest of our axioms) with a very mild continuity condition, we obtain a family of path-based measures. |
| Keywords: | Efficiency Measurement, Coefficient of Resource Utilization, Ordinal, Choice Consistency, Planning Consistency, Path-based |
| JEL: | C43 D24 |
| Date: | 2011–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:haf:huedwp:wp201114&r=upt |