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on Utility Models and Prospect Theory |
| By: | Harin, Alexander |
| Abstract: | В настоящей заметке, для удобства российских и русскоговорящих читателей, на русском языке кратко рассмотрено содержание книги "Введение в Суб-Интервальный Анализ и его Приложения" (в английском варианте – "Introduction to Sub-Interval Analysis and its Applications"). Книга представлена в открытом доступе в виде избранных глав "Введение в Суб-Интервальный Анализ и его Приложения (Избранные Главы)", в английском варианте – "Introduction to Sub-Interval Analysis and its Applications (Selected Chapters)". -- -- In this post, the contents of the book "Introduction to Sub-Interval Analysis and its Applications" are briefly reviewed in the Russian language for the convenience of Russian and Russian-speaking readers. |
| Keywords: | sub-interval analysis; mean value; moment; rupture; probability theory; utility theory; economics; modeling; |
| JEL: | E0 C9 D0 F0 A1 C02 C1 |
| Date: | 2012–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41361&r=upt |
| By: | Johanna Etner; Meglena Jeleva |
| Abstract: | The aim of this paper is to propose a behavioral characterization of individuals who underestimate probability modifications and to characterize this behavior in the standard preferences representation models under risk (Expected utility, Dual theory, Rank Dependant Utility Theory and MaxMin Expected Utility). Our main results are the following. Underreaction to probability modifications is in general independent from standard risk aversion and prudence. In models involving probability transformation functions, it is characterized by the slope of the probability transformation function. In the MaxMin Expected utility model under risk, it is related to the weights of the maximal and minimal consequences in the preferences representation function. Considering a simple prevention decision, consisting in the reduction of the probability of a monetary loss, we show that individuals who underreact to probability modifications invest less in prevention than individuals who objectively evaluate these modifications. Underreaction to probability modification is thus a possible explanation for low investment in prevention. |
| Keywords: | probability perception, non expected utility, prevention |
| JEL: | D81 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2012-33&r=upt |
| By: | Quang Nguyen (Division of Economics - Nanyang Technological University); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Hui Xu (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon) |
| Abstract: | We study the influence of risk and time preferences on trust and trustworthiness by conducting a field experiment in Vietnamese villages and by estimating the parameters of the Cumulative Prospect Theory and of quasi-hyperbolic time preferences. We find that while probability sensitivity or risk aversion do not affect trust, loss aversion influences trust indirectly by lowering the expectations of return. Also, more risk averse and less present biased participants are found to be trustworthier. The experience of receiving remittances influences behavior and a longer exposure to a collectivist economy tend to reduce trust and trustworthiness. |
| Keywords: | Trust, trustworthiness ; risk preferences ; time preferences ; Cumulative Prospect Theory ; Vietnam ; field experiment |
| Date: | 2012–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00730609&r=upt |
| By: | Antoine Nebout |
| Abstract: | This paper is a critical reflection on the notion of dynamic consistency that is commonly used in the literature in Economics and Decision Theory and on the difficulty to test it in an experimental set up. Building on the possible characteristics of individual dynamic preferences, we propose a conceptual categorisation of possible sequential decision making behaviors. In particular, we show that not conforming to Expected Utility Theory does not necessarily implies a violation of dynamic consistency and propose a simple set of decision tasks that allows to reveal different strategic types of resolution of a sequential decision problem by a non-expected utility maximizers. |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpaper:12-27&r=upt |
| By: | Arif Oduncu |
| Abstract: | The purpose of this paper is to understand the effects of the elasticity of intertemporal substitution (EIS) and risk aversion on savings separately and determine which coefficient is more important factor for precautionary savings. This is an important question since a significant fraction of the capital accumulation is due to precautionary savings according to literature. Thus, knowing the important determinant of precautionary savings will be helpful to understand the capital accumulation mechanism. This paper uses an Epstein-Zin utility function, which permits risk attitudes to be disentangled from the degree of intertemporal substitutability, in the model in order to study the effects of EIS and risk aversion separately. It is shown that saving increases as EIS increases. Similarly, saving increases as the coefficient of risk aversion increases. More importantly, it is observed that EIS is a more important factor for precautionary savings than risk aversion because saving is more responsive to changes in EIS than changes in risk aversion. |
| Keywords: | Precautionary Savings, Epstein-Zin Utility, Risk Aversion, Elasticity of Intertemporal Substitution |
| JEL: | C61 C63 E21 E27 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1227&r=upt |
| By: | Anna Gumena; Andrei Savochkin |
| Abstract: | In the framework of dynamic choice under uncertainty, we define dynamic stability as a combination of two assumptions prevalent in the literature: dynamic consistency and the requirement that updated preferences belong to the same class as ex ante ones. Maxmin preferences are shown to be not dynamically stable, and any dynamically stable subset in that class can contain only expected utility preferences. Dynamic stability also turns out to be a defining characteristic of the multiplier preferences of Hansen and Sargent (2001) within the scope of variational preferences. Restrictions imposed by dynamic stability are shown to be related to invariance of preferences. |
| Keywords: | dynamic consistency, dynamic stability, ambiguity, invariance, consequentialism, Sure Thing Principle, multiplier preferences |
| JEL: | D81 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:263&r=upt |
| By: | Carlos Oyarzun; Rajiv Sarin |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:786969000000000572&r=upt |
| By: | Ekaterina Svetlova (Karlshochschule International University); Henk van Elst (Karlshochschule International University) |
| Abstract: | In this article, we address the question of how non-knowledge about future events that influence economic agents' decisions in choice settings has been formally represented in economic theory up to date. To position our discussion within the ongoing debate on uncertainty, we provide a brief review of historical developments in economic theory and decision theory on the description of economic agents' choice behaviour under conditions of uncertainty, understood as either (i) ambiguity, or (ii) unawareness. Accordingly, we identify and discuss two approaches to the formalisation of non-knowledge: one based on decision-making in the context of a state space representing the exogenous world, as in Savage's axiomatisation and some successor concepts (ambiguity as situations with unknown probabilities), and one based on decision-making over a set of menus of potential future opportunities, providing the possibility of derivation of agents' subjective state spaces (unawareness as situation with imperfect subjective knowledge of all future events possible). We also discuss impeding challenges of the formalisation of non-knowledge. |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1209.2204&r=upt |
| By: | Jean-Pierre H. Dube; Günter J. Hitsch; Pranav Jindal |
| Abstract: | We present a survey design that generalizes static conjoint experiments to elicit inter-temporal adoption decisions for durable goods. We show that consumers’ utility and discount functions in a dynamic discrete choice model are jointly identified using data generated by this specific design. In contrast, based on revealed preference data, the utility and discount functions are generally not jointly identified even if consumers’ expectations are known. The separation of current-period preferences from discounting is necessary to forecast the diffusion of a durable good under alternative marketing strategies. We illustrate the approach using two surveys eliciting Blu-ray player adoption decisions. Both model-free evidence and the estimates based on a dynamic discrete choice model indicate that consumers make forward-looking adoption decisions. In both surveys the average discount rate is 43 percent, corresponding to a substantially higher degree of impatience than the rate implied by aggregate asset returns. The estimates also reveal a large degree of heterogeneity in the discount rates across consumers, but only little evidence for hyperbolic discounting. |
| JEL: | C14 D12 D9 M31 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18393&r=upt |