
on Utility Models and Prospect Theory 
By:  Alain Venditti (AixMarseille University (AixMarseille School of Economics), CNRSGREQAM, EHESS & EDHEC) 
Abstract:  Studies of optimal growth in a multisector framework are generally addressed in reduced form models. These are defined by an indirect utility function which summarizes the consumers’ preferences and the technologies. Weak concavity assumptions of the indirect utility function allow one to prove differentiability of optimal solutions and stability of steady state. This paper shows that if the consumption good production function is concavegamma, and the instantaneous utility function is concaverho, then the indirect utility function is weakly concave, and its curvature coefficients are bounded from above by a function of gamma and rho. 
Keywords:  indirect utility function, social production function, multisector optimal growth model, weak concavity 
JEL:  C62 E32 O41 
Date:  2014–09 
URL:  http://d.repec.org/n?u=RePEc:aim:wpaimx:1440&r=upt 
By:  Guy Mayraz 
Abstract:  This paper presents a model and an experiment, both suggesting that wishful thinking is a pervasive phenomenon that aect decisions large and small. Agents in the model start out with statedependent payos, and behave as if highpayo states are more likely. Subsequent choices maximize subjectiveexpected utility given these beliefs. Subjects in the experiment were paid in accordance with the future value of a nancial asset. Despite incentives for hedging, subjects gaining from high prices made higher predictions than subjects gaining from low prices. Comparative statics agreed with predictions. In particular, a large bonus for accurate predictions did not result in a smaller bias. 
Keywords:  wishful thinking, optimism, pessimism, cognitive dissonance, 
JEL:  D01 D03 D80 D81 D83 D84 G11 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:mlb:wpaper:1172&r=upt 
By:  V. I. Yukalov; D. Sornette 
Abstract:  We investigate how the choice of decision makers can be varied under the presence of risk and uncertainty. Our analysis is based on the approach we have previously applied to individual decision makers, which we now generalize to the case of decision makers that are members of a society. The approach employs the mathematical techniques that are common in quantum theory, justifying our naming as Quantum Decision Theory. However, we do not assume that decision makers are quantum objects. The techniques of quantum theory are needed only for defining the prospect probabilities taking into account such hidden variables as behavioral biases and other subconscious feelings. The approach describes an agent's choice as a probabilistic event occurring with a probability that is the sum of a utility factor and of an attraction factor. The attraction factor embodies subjective and unconscious dimensions in the mind of the decision maker. We show that the typical aggregate amplitude of the attraction factor is $1/4$, and it can be either positive or negative depending on the relative attraction of the competing choices. The most efficient way of varying the decision makers choice is realized by influencing the attraction factor. This can be done in two ways. One method is to arrange in a special manner the payoff weights, which induces the required changes of the values of attraction factors. We show that a slight variation of the payoff weights can invert the sign of the attraction factors and reverse the decision preferences, even when the prospect utilities remain unchanged. The second method of influencing the decision makers choice is by providing information to decision makers. The methods of influencing decision making are illustrated by several experiments, whose outcomes are compared quantitatively with the predictions of our approach. 
Date:  2014–09 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1409.0636&r=upt 
By:  Marcus Pivato (Université de CergyPontoise, THEMA and Department of Mathematics, Trent University, Canada) 
Abstract:  Given a sufficiently large population satisfying certain statistical regularities, we show that it is often possible to accurately estimate the utilitarian social welfare func tion and identify the welfaremaximizing social alternative, even if we only have very noisy data about individual utility functions and interpersonal utility comparisons, and even if the individuals can be strategically dishonest. 
Keywords:  utilitarian; interpersonal comparisons; GrovesClarke pivotal mecha nism. 
JEL:  D63 D71 
Date:  2014 
URL:  http://d.repec.org/n?u=RePEc:ema:worpap:201418&r=upt 
By:  Delaney, Liam; Fink, GÃ¼nther; Harmon, Colm 
Abstract:  The ways in which preferences respond to the varying stress of economic environments is a key question for behavioral economics and public policy. We conducted a laboratory experiment to investigate the effects of stress on financial decision making among individuals aged 50 and older. Using the cold pressor task as a physiological stressor, and a series of intelligence tests as cognitive stressors, we find that stress increases subjective discounting rates, has no effect on the degree of riskaversion, and substantially lowers the effort individuals make to learn about financial decisions. 
Keywords:  stress, financial decisions, discounting, risk aversion, learning, 
Date:  2014 
URL:  http://d.repec.org/n?u=RePEc:edn:sirdps:550&r=upt 
By:  Greasley, David; Hanley, Nick; McLaughlin, Eoin; Oxley, Les 
Abstract:  Modern macroeconomic theory utilises optimal control techniques to model the maximisation of individual wellbeing using a lifetime utility function. Agents face choices over current and future consumption (with resultant implied savings decisions) seeking to maximise the present value of current plus future wellbeing. However, such intertemporal welfaremaximising assumptions remain empirically untested. In the work presented here we test whether welfare was in (historical) fact maximised in the US between 18702000 and find empirical support for the optimising basis of growth theory, but only once a comprehensive view of what constitutes a country's wealth or capital is taken into account. 
Keywords:  comprehensive wealth; US; modern growth theory; intertemporal utility maximisation 
Date:  2014–08 
URL:  http://d.repec.org/n?u=RePEc:stl:stledp:201408&r=upt 
By:  Sofiene El Aoud (MAS  Mathématiques Appliquées aux Systèmes  EA 4037  Ecole Centrale Paris, FiQuant  Chaire de finance quantitative  Ecole Centrale Paris); Frédéric Abergel (MAS  Mathématiques Appliquées aux Systèmes  EA 4037  Ecole Centrale Paris, FiQuant  Chaire de finance quantitative  Ecole Centrale Paris) 
Abstract:  In this paper, we establish a model for market making in options whose underlying is perfectly liquid. In our model framework, the stock price follows a generic stochastic volatility model under the realworld probability measure P. Market participants price options on this stock under a riskneutral pricing measure Q, and they may misspecify the parameters controlling the dynamics of the volatility process. We consider that there is an agent who is willing to make markets in an option on the stock with the aim of maximizing his expected utility from terminal wealth at the maturity of this option. Since market impact is an important feature in the microscopic time scale and should be taken into account in high frequency trading, we study di erent forms of this function argued in the recent literature. Through the use of optimal stochastic control, we provide exact expressions of optimal bid and ask quotes of the market making strategy in the case where the agent is riskneutral. Afterward, we suppose that the agent is riskaverse and wants to reduce the variance of the nal wealth. In addition, this agent tries not to accumulate a large inventory in order not to have a signi cant exposure to market risk. For this purpose, we perturb the utility function by a penalty on the variance of nal wealth and also on accumulated inventory. Using singular perturbation with respect to the penalty parameter, we provide analytic approximations of the optimal bid and ask quotes. In order to con rm our theoretical results, we perform Monte Carlo simulations of the optimal market making strategy in the case where the stock price process follows a Heston model. We show that the opti mal strategy is more pro table than a zerointelligence strategy. Besides, we highlight the e ects of the misspeci cation of the parameters on the performance of the strategy. 
Date:  2014–07–01 
URL:  http://d.repec.org/n?u=RePEc:hal:wpaper:hal01061852&r=upt 
By:  Fairlie, Robert 
Abstract:  A growing literature examines the relationship between personality traits and entrepreneurship, but no previous studies explore whether personality or psychological traits predispose individuals to benefit more from entrepreneurship training. To address selection issues, we use novel data from the largestever randomized control experiment providing entrepreneurship training in the United States. We find evidence indicating that individuals who are more risk tolerant benefit more from entrepreneurship training than less risk tolerant individuals. We find some limited evidence that individuals who have a preference for autonomy benefit more from entrepreneurship training in the short run, but we find no evidence of longerterm effects and no evidence of differential effects of entrepreneurship training for individuals who are more innovative. 
Keywords:  Business, Education, Social and Behavioral Sciences, entrepreneurship, education, training, psychology, experiment 
Date:  2014–09–12 
URL:  http://d.repec.org/n?u=RePEc:cdl:ucscec:qt9x83w5k4&r=upt 
By:  Kazuo Nishimura (RIEB, Kobe University & KIER, Kyoto University); Carine Nourry (AixMarseille University (AixMarseille School of Economics), CNRSGREQAM, EHESS & Institut Universitaire de France); Thomas Seegmuller (AixMarseille University (AixMarseille School of Economics), CNRSGREQAM & EHESS); Alain Venditti (AixMarseille University (AixMarseille School of Economics), CNRSGREQAM, EHESS & EDHEC) 
Abstract:  We introduce public debt in a Ramsey model with heterogenous agents and a public spending externality affecting utility which is financed by income tax and public debt. We show that public debt considered as a fixed portion of GDP can have a stabilizing or destabilizing effect depending on some fundamental elasticities. When the public spending externality is weak and the elasticity of capital labor substitution is low enough, public debt can only be destabilizing, generating damped or persistent macroeconomic fluctuations. Whereas when the public spending externality and the elasticity of capital labor substitution are strong enough, public debt can be stabilizing, driving to monotone convergence an economy experiencing damped or persistent fluctuations without debt. 
Keywords:  endogenous cycles, heterogeneous agents, public spending, public debt, borrowing constraint 
JEL:  C62 E32 H23 
Date:  2014–06 
URL:  http://d.repec.org/n?u=RePEc:aim:wpaimx:1436&r=upt 
By:  CHATZINIKOLAOU, PARTHENA; MANOS, BASIL; KIOMOURTZI, FEDRA 
Abstract:  This paper presents a model for sustainable planning and optimization of agricultural production. The model is a mathematical programming model, based on multicriteria techniques, and is used as a tool for the analysis and simulation of agricultural production plans, as well as for the study of impacts of the various policies in agriculture. The model can achieve the optimum production plan of an agricultural region combining in one utility function different conflicting criteria as the maximization of gross margin and the minimization of fertilizers used, under a set of constraints for land, labour, available capital, common agricultural policy etc. The proposed model was applied to the region of Thessaly, in central Greece. In all prefectures, the optimum production plan achieves greater gross return, les fertilizers use, and less irrigated water use than the existent production plan. 
Keywords:  sustainable planning, multicriteria analysis, optimization of agricultural production, Productivity Analysis, 
Date:  2014 
URL:  http://d.repec.org/n?u=RePEc:ags:aiea14:173105&r=upt 