
on Utility Models and Prospect Theory 
By:  Harin, Alexander 
Abstract:  A possibility of the existence of a discontinuity of Prelec’s (probability weighting) function at the probability p = 1 is discussed. This possibility is supported by the purely mathematical theorems and the “certain–uncertain” inconsistency of the random–lottery incentive experiments. The results of the wellknown experiment support it as well. 
Keywords:  Prelec; utility; prospect theory; probability weighting function; Luce; 
JEL:  C0 C02 C1 C8 C9 C91 C93 D01 D8 D81 G02 G11 
Date:  2015–05–28 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:64672&r=upt 
By:  Hill, Brian 
Abstract:  This paper proposes and characterises a model of uncertainty averse preferences that can simultaneously accommodate three divergences from subjective expected utility: imprecision of beliefs (or ambiguity), imprecision of tastes (or multi utility), and state dependence of utility. Moreover, it characterises, in this context, a notion of state independence of utility borrowed from the literature on incomplete preferences. This notion is then shown to be basically inconsistent with the standard stateindependence axiom, monotonicity, whenever tastes are imprecise. A new notion of state independence in the context of imprecise tastes, which is characterised by monotonicity, is proposed. 
Keywords:  State independence of utility; imprecise tastes; uncertainty aversion; multi utility; multiple priors; statedependent utility 
JEL:  D81 
Date:  2015–01–22 
URL:  http://d.repec.org/n?u=RePEc:ebg:heccah:1079&r=upt 
By:  Eric Danan (THEMA  Théorie économique, modélisation et applications  Université de Cergy Pontoise  CNRS); Thibault Gajdos (GREQAM  Groupement de Recherche en Économie Quantitative d'AixMarseille  Université Paul Cézanne  AixMarseille 3  Université de la Méditerranée  AixMarseille 2  EHESS  École des hautes études en sciences sociales  CNRS  AMU  AixMarseille Université); Brian Hill (GREGH  Groupement de Recherche et d'Etudes en Gestion à HEC  CNRS  GROUPE HEC); JeanMarc Tallon (CES  Centre d'économie de la Sorbonne  UP1  Université PanthéonSorbonne  CNRS, EEPPSE  Ecole d'Économie de Paris  Paris School of Economics) 
Abstract:  We provide possibility results on the aggregation of beliefs and tastes for Monotone, Bernoullian and Archimedian preferences of CerreiaVioglio, Ghirardato, Maccheroni, Marinacci and Siniscalchi (2011). We propose a new axiom, Unambiguous Pareto Dominance, which requires that if the unambiguous part of individuals' preferences over a pair of acts agree, then society should follow them. We characterize the resulting social preferences and show that it is enough that individuals share a prior to allow non dictatorial aggregation. A further weakening of this axiom on commontaste acts, where cardinal preferences are identical, is also characterized. It gives rise to a set of relevant priors at the social level that can be any subset of the convex hull of the individuals' sets of relevant priors. We then apply these general results to the Maxmin Expected Utility model, the Choquet Expected Utility model and the Smooth Ambiguity model. We end with a characterization of the aggregation of ambiguity attitudes. 
Date:  2014–07 
URL:  http://d.repec.org/n?u=RePEc:hal:cesptp:halshs01099032&r=upt 
By:  Milo Bianchi (TSE  Toulouse School of Economics  UT1  Université Toulouse 1 Capitole); JeanMarc Tallon (CES  Centre d'économie de la Sorbonne  UP1  Université PanthéonSorbonne  CNRS, EEPPSE  Ecole d'Économie de Paris  Paris School of Economics) 
Abstract:  We investigate the empirical relation between ambiguity aversion, risk aversion and portfolio choices. We match administrative panel data on portfolio choices with survey data on preferences over ambiguity and risk. We report three main findings. First, conditional on participation, ambiguity averse investors hold riskier portfolios. Second, they rebalance their portfolio in a contrarian direction relative to the market. Accordingly, their exposure to risk is more stable over time. Third, their portfolios experience higher returns, but they are also more sensitive to market trends. In several instances, the effects of ambiguity aversion stand in sharp contrast with those of risk aversion. 
Date:  2014–09 
URL:  http://d.repec.org/n?u=RePEc:hal:cesptp:halshs01109655&r=upt 
By:  Rania Hentati Kaffel (CES  Centre d'économie de la Sorbonne  UP1  Université PanthéonSorbonne  CNRS); JeanLuc Prigent (THEMA  Théorie économique, modélisation et applications  Université de Cergy Pontoise  CNRS) 
Abstract:  The recent financial crisis has highlighted the necessity to introduce mixtures of probability distributions in order to improve the estimation of asset returns and in particular to better take account of risks. Since Pearson (1894), these mixtures have been intensively used in many scientific fields since they provide very convenient mathematical tools to examine various statistical data and to approximate many probability distributions. They are typically introduced to model the choice of probability distributions among a given parametric family. The coefficients of the mixture usually correspond to the relative frequencies of each possible parameter. In this framework, we examine the singleperiod portfolio choice model, which has been addressed in the partial equilibrium framework, by Brennan and Solanki (1981), Leland (1980) and Prigent (2006). We consider an investor who wants to maximize the expected utility of the value of his portfolio consisting of one riskfree asset and one risky asset. We provide and analyze the solution for log return with mixture distributions, in particular for the mixture Gaussian case. The optimal portfolio is characterized for arbitrary utility functions. Our results show that mixture of distributions can have significant implications on the portfolio management. 
Date:  2014–09–19 
URL:  http://d.repec.org/n?u=RePEc:hal:cesptp:hal01066105&r=upt 