|
on Utility Models and Prospect Theory |
| By: | Ralf Bergheim |
| Abstract: | This paper experimentally investigates individual information acquisition and decisions in ambiguous situations in which the degree of ambiguity can endogenously and individually be decreased by the subjects. In particular, I analyze how risk aversion, ambiguity attitude and personality traits are related to an individual’s information acquisition prior to a decision and to the decision itself based on this information. I focus on urn decisions and conduct treatments that consider the loss and gain domain separately and that vary the amount of available information and the probabilistic structure. |
| Keywords: | Ambiguity aversion; risk aversion; experiment; decision making; information acquisition; personality traits |
| JEL: | C91 D03 D81 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0488&r=upt |
| By: | John Quah |
| Abstract: | We identify necessary and sufficient conditions under which a finite data set of price vectors and consumption bundles can be rationalized by a weakly separable utility function.� Our result could be understood as a generalization of Afriat's Theorem. |
| Keywords: | Afriat's Theorem, utility function, revealed preference, generalized axiom |
| JEL: | C14 C60 C61 D11 D12 |
| Date: | 2014–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:708&r=upt |
| By: | Massimiliano AMARANTE |
| Abstract: | The concept of Ambiguity designates those situations where the information available to the decision maker is insufficient to form a probabilistic view of the world. Thus, it has provided the motivation for departing from the Subjective Expected Utility (SEU) paradigm. Yet, the formalization of the concept is missing. This is a grave omission as it leaves non-expected utility models hanging on a shaky ground. In particular, it leaves unanswered basic questions such as: (1) Does Ambiguity exist?; (2) If so, which situations should be labeled as "ambiguous"?; (3) Why should one depart from Subjective Expected Utility (SEU) in the presence of Ambiguity?; and (4) If so, what kind of behavior should emerge in the presence of Ambiguity? The present paper fi lls these gaps. Speci fically, it identifi es those information structures that are incompatible with SEU theory, and shows that their mathematical properties are the formal counterpart of the intuitive idea of insufficient information. These are used to give a formal de finition of Ambiguity and, consequently, to distinguish between ambiguous and unambiguous situations. Finally, the paper shows that behavior not conforming to SEU theory must emerge in correspondence of insufficient information and identifi es the class of non-EU models that emerge in the face of Ambiguity. The paper also proposes a new comparative defi nition of Ambiguity, and discusses its relation with some of the existing literature. |
| Keywords: | non-expected utility, information, ambiguity |
| JEL: | D81 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:04-2014&r=upt |
| By: | Walter BOSSERT; Kotaro SUZUMURA |
| Abstract: | We generalize the classical expected-utility criterion by weakening transitivity to Suzumura consistency. In the absence of full transitivity, reflexivity and completeness no longer follow as a consequence of the system of axioms employed and a richer class of rankings of probability distributions results. This class is characterized by means of standard expected-utility axioms in addition to Suzumura consistency. An important feature of some members of our new class is that they allow us to soften the negative impact of wellknown paradoxes without abandoning the expected-utility framework altogether. |
| JEL: | D81 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:07-2014&r=upt |
| By: | Friedman, Daniel; Isaac, R. Mark; James, Duncan; Sunder, Shyam |
| Keywords: | Social and Behavioral Sciences |
| Date: | 2014–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucscec:qt87v8k86z&r=upt |
| By: | Haoran He (School of Economics and Business Administration - Beijing Normal University / Beijing); Marie Claire Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I (UCBL)) |
| Abstract: | We compare inequality aversion in individuals and teams by means of both within- and between-subject experimental designs, and we investigate how teams aggregate individual preferences. We find that team decisions reveal less inequality aversion than individual initial proposals in team decision-making. However, teams are no more selfish than individuals who decide in isolation. Individuals express strategically more inequality aversion in their initial proposals in team decision-making because they anticipate the selfishness of other members. Members with median social preferences drive team decisions. Finally, we show that social image has little influence because guilt and envy are almost similar in anonymous and non-anonymous interactions. |
| Keywords: | Team; inequity aversion; preference aggregation; social image; experiment |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00996545&r=upt |
| By: | Li Hao (Walton College - University of Arkansas); Daniel Houser (Interdisciplinary Center for Economic Science, George Mason University - George Mason University); Lei Mao (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I (UCBL)); Marie Claire Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I (UCBL)) |
| Abstract: | Using a field experiment in China, we study whether migration status is correlated with attitudes toward risk, ambiguity, and competitiveness. Our subjects include migrants and non-migrants. We find that, migrants exhibit no differences from non-migrants in risk and ambiguity preferences elicited using pairs of lotteries ; however, migrants are significantly more likely to enter competition in the presence of strategic uncertainty when they expect competitive entries from others. Our results suggest that migration may be driven more by a stronger belief in one's ability to succeed in an uncertain and competitive environment than by risk attitudes under state uncertainty. |
| Keywords: | Migration; risk preferences; strategic uncertainty; ambiguity; field experiment |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00997502&r=upt |
| By: | Kikuchi, Kazuya |
| Abstract: | A decision maker is presented with two preference orders over n objects and chooses the one which is “closer” to his own preference order. We consider several plausible comparison rules that the decision maker might employ. We show that when n is large and the pair of orders to be compared randomly realizes, different comparison rules lead to statistically almost independent choices. Thus, two people with a common preference relation may nonetheless exhibit almost uncorrelated choice patterns. |
| Keywords: | preference relation, rank correlation |
| JEL: | D01 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:hit:econdp:2014-06&r=upt |
| By: | Farid Mkouar; Jean-Luc Prigent |
| Abstract: | We examine the long term investment problem, under stochastic interest and inflation rates and incompleteness. Four basic financial assets are available on the financial market: a money market account (the cash), a real consumption good, a financial stock index and a bond with constant maturity. This one corresponds to a nominal bond. In this incomplete framework, we provide the general solution of the expected utility maximization. This intertemporal optimization problem is solved by using the convex duality method, introduced by Cvitanic and Karatzas (1992). We determine also the optimal portfolio weights by using the method of dynamic programming based on the Hamilton-Jacobi-Bellmann approach. We compute the monetary loss from not having access to an indexed-inflation bond, in order to be hedged against the inflation risk, in particular for the logarithmic case. |
| Keywords: | portfolio optimization, stochastic interest rate, stochastic inflation, incom- pleteness, compensating variation.. |
| JEL: | C61 G11 G12 |
| Date: | 2014–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-301&r=upt |