nep-upt New Economics Papers
on Utility Models and Prospect Theory
Issue of 2015‒06‒13
nineteen papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Unusual Estimates of Probability Weighting Functions By Nathaniel T. Wilcox
  2. Unique Random Utility Representations By Morgan McClellon
  3. Error and Generalization in Discrete Choice Under Risk By Nathaniel T. Wilcox
  4. Confidence Models of Incomplete Preferences By Morgan McClellon
  5. Non-Additive Random Utility Functions By Morgan McClellon
  6. Why is the American Workplace Racially Segregated by Occupation? By Nadeem Naqvi
  7. Income Inequality and Risk Taking By Schmidt, Ulrich; Neyse, Levent; Aleknonyte, Milda
  8. Parenthood and risk preferences By Görlitz, Katja; Tamm, Marcus
  9. Information acquisition and decisions under risk and ambiguity By Bergheim, Ralf
  10. Bayesian Learning with Multiple Priors and Non-Vanishing Ambiguity By Alexander Zimper; Wei Ma
  11. How do consumers choose health insurance? An experiment on heterogeneity in attribute tastes and risk preferences By Kairies-Schwarz, Nadja; Kokot, Johanna; Vomhof, Markus; Wessling, Jens
  12. Discrete choice models for multicategory goods By Yukihiro Kidokoro;
  13. Higher-order risk preferences in social settings: An experimental analysis By Heinrich, Timo; Mayrhofer, Thomas
  14. Homothetic efficiency: A non-parametric approach By Heufer, Jan; Hjertstrand, Per
  15. Consistent subsets: Computationally feasible methods to compute the Houtman-Maks-index By Heufer, Jan; Hjertstrand, Per
  16. Am I my peer's keeper? Social responsibility in financial decision making By Füllbrunn, Sascha; Luhan, Wolfgang J.
  17. Certainty Equivalent: Many Meanings of a Mean By Elisa Pagani
  18. Beyond a neoclassical consumer analysis in food choices By Gervasio Antonelli; Gian Italo Bischi; Fabio Tramontana; Elena Viganò
  19. Are Armington elasticities different across countries and sectors? A European study By Olekseyuk, Zoryana; Schürenberg-Frosch, Hannah

  1. By: Nathaniel T. Wilcox (Economic Science Institute (Chapman University) and Center for the Economic Analysis of Risk (Georgia State University))
    Abstract: I present new estimates of the probability weighting functions found in rank-dependent theories of choice under risk. These estimates are unusual in two senses. First, they are free of functional form assumptions about both utility and weighting functions, and they are entirely based on binary discrete choices and not on matching or valuation tasks, though they depend on assumptions concerning the nature of probabilistic choice under risk. Second, estimated weighting functions contradict widely held priors of an inverse-s shape: Instead I usually find populations dominated by “optimists” who uniformly overweight best outcomes in risky options. A salience-based theory of choice may help to explain this. Additionally, the choice pairs I use here mostly do not provoke similarity-based simplifications. In a third experiment, I show that the presence of choice pairs that provoke similarity-based computational shortcuts does indeed flatten estimated probability weighting functions.
    Keywords: prospect theory, probability weighting, probabilistic choice, rank-dependent utility, risk, similarity, salience
    JEL: C25 C91 D81
    Date: 2015
  2. By: Morgan McClellon
    Abstract: Random utility representations of stochastic choice data on a finite set of alternatives are not necessarily unique. In fact, failures of uniqueness are shown here to be widespread: any random utility function with full support is nonunique. To restore uniqueness this paper introduces a finite state space and considers random choice over Savage acts. A representation is characterized in which acts are chosen according to the probability that they are optimal in every state. 
    Date: 2015–06
  3. By: Nathaniel T. Wilcox (Economic Science Institute (Chapman University) and Center for the Economic Analysis of Risk (Georgia State University))
    Abstract: I compare the generalization ability, or out-of-sample predictive success, of four probabilistic models of binary discrete choice under risk. One model is the conventional homoscedastic latent index model—the simple logit—that is common in applied econometrics: This model is “context-free” in the sense that its error part is homoscedastic with respect to decision sets. The other three models are also latent index models but their error part is heteroscedastic with respect to decision sets: In that sense they are “context-dependent” models. Context-dependent models of choice under risk arise from several different theoretical perspectives. Here I consider my own “contextual utility” model (Wilcox 2011), the “decision field theory” model of Busemeyer and Townsend (1993) and the “Blavatskyy-Fishburn” model (Fishburn 1978; Blavatskyy 2014). In a new experiment, all three context-dependent models outperform the context-free model in prediction, and significantly outperform a linear probability model (suggested by contemporary applied practice a la Angrist and Pischke 2009) when the latent preference structure is rank-dependent utility (Quiggin 1982). All of this holds true for function-free estimations of outcome utilities and probability weights as well as parametric estimations. Preoccupation with theories of the deterministic structure of choice under risk, to the exclusion of theories of error, is a mistake.
    Keywords: risk, discrete choice, probabilistic choice, heteroscedasticity, prediction
    JEL: C25 C91 D81
    Date: 2015
  4. By: Morgan McClellon
    Abstract: This paper introduces and axiomatizes a new class of representations for incomplete preferences called confidence models. Confidence models describe decision makers who behave as if they have probabilistic uncertainty over their true preferences, and are only willing to express a binary preference if it is sufficiently likely to hold. Confidence models are flexible enough to model behavior on a variety of domains, and they are general enough to nest the popular multi-utility models of incomplete preferences. Most importantly, they provide a natural way to connect incomplete preferences with stochastic choice. This connection is characterized by a simple condition that serves to identify the behavioral content of incomplete preferences. 
    Date: 2015–06
  5. By: Morgan McClellon
    Abstract: This paper studies random choice rules over finite sets that obey regularity but potentially fail to satisfy all of the Block-Marschak inequalities. Such random choice rules can be represented by non-additive random utility functions: that is, by capacities on the space of preferences. The higher-order Block-Marschak inequalities are shown to be related to the degree of monotonicity that can be achieved by a capacity representation. These results help to decipher the Block-Marschak inequalities, and are applied to study the relationship between random choice over finite sets and random choice over lotteries. 
    Date: 2015–06
  6. By: Nadeem Naqvi (KIMEP University, Almaty, Kazakhstan)
    Abstract: Arrow (1998) asks, “What has economics to say about racial discrimination?” He replies – entirely correctly – that racial “segregation within an industry – that is, firms with either all black or all white labor forces” – may be explained by economic theory, but “the hypothesis of employer discrimination does not at all explain segregation by occupation, [and] discriminatory tastes of other employees … may explain segregation [by firms] within industries but not segregation by occupation[s]” that are filled by racially distinct persons within firms. Becker (1957) and Akerlof and Kranton (2000 and 2010) offer economic theories that deal with social identity differentiation, but these lack rational choice theory foundations, insofar as they impose a utility indicator function as a primitive concept via persuasion, rather than such a function being entailed by derivation from a preference ranking relation defined on a set of outcomes, with restrictions imposed both on the set and the relation. This is a methodological weakness of their work relative to that of Arrow and Debreu (1954). A more serious difficulty with these contributions is that they ascribe a utility function to each individual in an economy, but I prove that assigning to individuals binary preferences, with or without their numerical representation as utility indicator functions, entails the impossibility of interpersonal social-identity diversification, rendering all persons in society indistinguishable by identity. The information necessary to identify a person’s social identity is stripped off the model by the binariness restriction. A person in a binariness-salient model would simply not know against whom to discriminate. Economic theory is, therefore, endogenously color-blind, race-blind, gender-blind, ethnicity-blind, and in general, social-identity-blind. Everybody in the economy is White, or all persons are Black, or all female, or all Hispanics, and so on, but no two persons can endogenously have distinct social identities. This is also true of every player in a game, as in Nash (1951). However, if preferences are non-binary, interpersonal social identity diversification is possible, though their real-valued utility function representation is impossible. This begs the question as to what exact form preferences must take to support the specific utility function of Akerlof and Kranton, which also is non-traditional relative to the utility indicator function in Arrow and Debreu. As it happens, to exhibit diversity of persons by social identity, ascribing a utility function to a person is conceptually too restrictive. By substituting non-binary for binary preferences in the model of Arrow and Debreu, I extend their economic theory. The more general model I thus formulate has the following features: (i) there exists a social state in which all persons maximize their preferences on their feasible sets, (ii) endogenous interpersonal social-identity diversification characterizes this state of the economy, (iii) it is a free-market equilibrium without any state intervention, (iv) it is a Pareto optimal social state, and (v) a sizable proportion of Black workers are segregated into low-rank, low income jobs, whereas White workers in the same observable proficiency domain are placed in high-ranking, high-income jobs, thereby explaining occupational segregation within firms along a racial divide, which entails that (vi) income and wealth distributions vary by social identity. Thus free markets deliver a Pareto optimal state but it is fraught with remediable injustices. Further, my explanation meets standards Arrow sets for such a theory (see p. 20).
    Keywords: justice, social identity, discrimination, race, gender, non-binariness, maximization, rational choice theory, social choice theory, general equilibrium, game theory, asymmetric information, social norms
    JEL: D11 D46 D51 D63 D74 D82 J15 J16 Z13
    Date: 2015–04
  7. By: Schmidt, Ulrich; Neyse, Levent; Aleknonyte, Milda
    Abstract: Standard economic theory assumes that individual risk taking decisions are independent from the social context. Recent experimental evidence however shows that the income of peers has a systematic impact on observed degrees of risk aversion. In particular, subjects strive for balance in the sense that they take higher risks if this gives them the chance to break even with their peers. The present paper is, to the best of our knowledge, the first systematic analysis of income inequality and risk taking. We perform a real-effort field experiment where inequality is introduced to different wage rates. After the effort phase subjects can invest (part of) their salary into a risky asset. Besides the above mentioned possibility of higher risk taking of low-wage individuals to break even with high-wage individuals, risk taking can be influenced by an income effect consistent with e.g. decreasing absolute risk aversion and a house money effect of high-wage individuals. Our results show that the dominant impact of inequality on risk taking is what can be termed a social house money effect: high-wage individuals take higher risks than low-wage individuals only if they are aware of the inequality in wages.
    Keywords: Risk; Inequality; Real Effort; Field Experiment; Social Comparison
    JEL: C91 C93 D63 D81 J31
    Date: 2015–06–05
  8. By: Görlitz, Katja; Tamm, Marcus
    Abstract: This study analyzes how risk attitudes change when individuals become parents using longitudinal data for a large and representative sample of individuals. The results show that men and women experience a considerable increase in risk aversion which already starts as early as two years before becoming a parent, is largest shortly after giving birth and disappears when the child becomes older. These findings show that parenthood leads to considerable changes in individual risk attitudes over time. Thus, analyses using risk preferences as the explanatory variable for economic outcomes should be careful in interpreting the findings as causal effects.
    Abstract: Anhand eines umfassenden und repräsentativen longitudinalen Datensatzes wird in der Studie untersucht, wie sich die Risikoeinstellung von Personen ändert, wenn diese Eltern werden. Sowohl Männer als auch Frauen werden mit Eintritt in die Elternschaft deutlich risikoaverser. Die Zunahme der Risikoaversion beginnt bereits etwa zwei Jahre vor der Geburt des ersten Kindes, fällt kurz nach der Geburt am stärksten aus und verschwindet, wenn das Kind älter wird. Die Ergebnisse verdeutlichen, dass die individuelle Risikoeinstellung im Zeitablauf nicht konstant ist, sondern dass Elternschaft einen erheblichen Einfluss auf diese hat. Untersuchungen, die den Einfluss von Risikoaversion auf Verhalten betrachten, sollten in ihrer Interpretation daher vorsichtiger sein, eventuelle Zusammenhänge als kausaler Natur zu bezeichnen.
    Keywords: risk aversion,risk preferences,preference stability,parenthood,children,gender differences
    JEL: D1 D81 J13 J16
    Date: 2015
  9. By: Bergheim, Ralf
    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. I find that risk and ambiguity aversion affect the information acquisition but are less influential for the decisions between two ambiguous urns according to several heuristics. In contrast, personality traits and an individual's primary decision type turn out to have an impact on both information acquisition and decisions. I observe that under this study's presentation format the reflection effect is reversed for negative and positive payoffs in low probability treatments compared to corresponding results under a descriptive presentation format.
    Abstract: Die experimentelle Studie untersucht die individuelle Informationsnachfrage und Entscheidung in Situationen, in denen der Grad an Unsicherheit endogen variiert werden kann. Durch Informationsakquise ist es den Probanden möglich, die vorherrschende Ambiguität über die Wahrscheinlichkeitsstruktur eines Entscheidungsproblems zwischen zwei Urnen zu Risiko zu reduzieren. Die Studie untersucht, wie Risikoaversion, die Einstellung zu Ambiguität und verschiedene Persönlichkeitsmerkmale sowohl die Nachfrage nach Information als auch die Entscheidung selber beeinflussen. Die Resultate zeigen, dass die individuelle Risikoaversion und die Einstellung zu Ambiguität einen signifikanten Einfluss auf die Informationsnachfrage haben. Hingegen werden die Entscheidungen anhand verschiedener Heuristiken nicht durch diese individuellen Eigenschaften erklärt. Darüber hinaus findet die Studie Hinweise darauf, dass sich der reflection effect unter dem gewählten Präsentationsformat im Vergleich zur Literatur umkehrt.
    Keywords: ambiguity aversion,risk aversion,experiment,decision making,information acquisition,personality traits
    JEL: C91 D03 D81
    Date: 2014
  10. By: Alexander Zimper (Department of Economics, University of Pretoria); Wei Ma (Department of Economics, University of Pretoria)
    Abstract: The existing models of Bayesian learning with multiple priors by Marinacci (2002) and by Epstein and Schneider (2007) formalize the intuitive notion that ambiguity should vanish through statistical learning in an one-urn environment. Moreover, the multiple priors decision maker of these models will eventually learn the ``truth". To accommodate non vanishing violations of Savage's (1954) sure-thing principle, as reported in Nicholls et al. (2015), we construct and analyze a model of Bayesian learning with multiple priors for which ambiguity does not necessarily vanish. Our decision maker only forms posteriors from priors that pass a plausibility test in the light of the observed data in the form of a ``gamma"-maximum expected loglikelihood prior-selection rule. The ``stubbornness" parameter "gamma" greater than equal to 1 determines the magnitude by which the expectation of the loglikelihood with respect to plausible priors can differ from the maximal expected loglikelihood. The greater the value of ``gamma" , the more priors pass the plausibility test to the effect that less ambiguity vanishes in the limit of our learning model.
    Keywords: Ambiguity, Bayesian Learning, Misspecified Priors, Berk's Theorem, Kullback-Leibler Divergence, Ellsberg Paradox
    JEL: C11 D81
    Date: 2015–06
  11. By: Kairies-Schwarz, Nadja; Kokot, Johanna; Vomhof, Markus; Wessling, Jens
    Abstract: Recent health policy reforms try to increase consumer choice. We use a laboratory experiment to analyze consumers' tastes in typical contract attributes of health insurances and to investigate their relationship with individual risk preferences. First, subjects make consecutive insurance choices varying in the number and types of contracts offered. Then, we elicit individual risk preferences according to Cumulative Prospect Theory. Applying a latent class model to the choice data, reveals five classes of consumers with considerable heterogeneity in tastes for contract attributes. From this, we infer distinct behavioral strategies for each class. The majority of subjects use minimax strategies focusing on contract attributes rather than evaluating probabilities in order to maximize expected payoffs. Moreover, we show that using these strategies helps consumers to choose contracts, which are in line with their individual risk preferences. Our results reveal valuable insights for policy makers of how to achieve efficient consumer choice.
    Abstract: Jüngste Gesundheitsreformen versuchen, Wahlmöglichkeiten für Konsumenten zu verbessern. Wir verwenden ein Laborexperiment, um die Präferenzen von Konsumenten für typische Vertragsattribute von Krankenversicherungen zu analysieren und um ihre Beziehung zu individuellen Risikopräferenzen zu untersuchen. Zuerst treffen Teilnehmer aufeinanderfolgende Versicherungsentscheidungen, die in der Anzahl und der Art der angebotenen Verträge variieren. Anschließend erheben wir individuelle Risikopräferenzen im Sinne der kumulativen Prospect Theory. Ein auf die Entscheidungsdaten angewandtes Latent Class Modell kann fünf Klassen von Konsumenten mit einer beachtlichen Heterogenität in Präferenzen für Vertragsattribute identifizieren. Davon ausgehend leiten wir spezifische Verhaltensstrategien für jede Klasse ab. Die Mehrheit der Teilnehmer wendet Minimax-Strategien an und konzentriert sich auf Vertragsattribute, anstatt Wahrscheinlichkeiten zu bewerten um die erwartenden Auszahlungen zu maximieren. Ferner zeigen wir, dass die Anwendung dieser Strategien Konsumenten hilft, Verträge zu wählen, die mit ihren individuellen Risikopräferenzen übereinstimmen. Unsere Ergebnisse liefern wertvolle Einsichten für politische Entscheidungsträger, wie sie effiziente Wahlmöglichkeiten für Konsumenten erreichen können.
    Keywords: health insurance,risk preferences,heterogeneity,heuristics,laboratory experiment,cumulative prospect theory
    JEL: C91 I13 D81
    Date: 2014
  12. By: Yukihiro Kidokoro (GRIPS);
    Abstract: Although discrete choice models are well suited to describing the demand structure of differentiated goods, two important problems remain unsolved in their application. First, the total demand for a choice set is exogenously fixed. Second, multiple categories of goods cannot be handled in an unrestrictive way. In this paper, we address these flaws by formulating a complete utility maximization problem that is consistent with discrete choice models and derive the implications for applied research. We then apply the results to the ketchup and mayonnaise markets and investigate the differences arising from the consideration of multiple categories of goods.
    Date: 2015–06
  13. By: Heinrich, Timo; Mayrhofer, Thomas
    Abstract: We study higher-order risk preferences, i.e. prudence and temperance, next to risk aversion in social settings. Previous experimental studies have shown that higher-order risk preferences affect the choices of individuals deciding privately on lotteries that only affect their own pay-off. Yet, most risky and financially relevant decisions in the field are made in the social settings of households or organizations. We aim to narrow the gap between laboratory and field evidence by creating a more realistic decision making environment in the laboratory that allows us to identify the influence of different social settings under controlled conditions. We elicit higher-order risk preferences of individuals and systematic ally vary how an individual's decision is made (alone or while communicating with a partner) and who is affected by the decision (only the individual or the partner as well). In doing so, we can isolate the effects of other-regarding concerns and communication on choices. We observe that individuals become more risk-averse when the partner is able to communicate with the decision maker. However, we do not observe an influence of social settings on prudence and temperance. Our results reveal that the majority of choices are risk-averse, prudent, and temperate across social settings.
    Abstract: Wir untersuchen neben Risikoaversion auch Risikopräferenzen höherer Ordnung, d.h. "Prudence" und "Temperance" in sozialen Situationen. Experimentelle Studien haben bisher gezeigt, dass Risikopräferenzen höherer Ordnung die Entscheidungen von Individuen bestimmen, die isoliert zwischen Lotterien wählen, die nur ihre eigene Auszahlung bestimmen. Jedoch werden die meisten finanziell relevanten Entscheidungen unter Unsicherheit in sozialen Situationen getroffen, z.B. in Haushalten oder Organisationen. In unserer Studie verkleinern wir die Diskrepanz zwischen bisheriger Labor- und Feldevidenz, indem wir eine realistischere Entscheidungssituation im Labor kreieren. Sie erlaubt es, den Einfluss unterschiedlicher sozialer Einflüsse unter kontrollierten Bedingungen zu identifizieren. Wir erheben Risikopräferenzen höherer Ordnung von Individuen und variieren systematisch wie eine Entscheidung getroffen wird (alleine oder während der Kommunikation mit einem Partner) und wer von der Entscheidung betroffen ist (nur der Entscheider oder auch der Partner). So können wir den Einfluss von etwaigen "other-regarding concerns" und von Kommunikation auf die Entscheidungen isolieren. Wir beobachten, dass die Individuen risiko-averser entscheiden, wenn mit dem Partner kommuniziert werden kann. Wir beobachten jedoch keinen Einfluss der sozialen Situation auf Risikopräferenzen höherer Ordnung. Unsere Ergebnisse zeigen, dass die Mehrzahl der Entscheidungen über unterschiedliche soziale Situationen hinweg risikoavers, "prudent" und "temperate" ist.
    Keywords: experiment,individual decisions,group decisions,risk aversion,prudence,temperance
    JEL: C91 C92 D70 D81
    Date: 2014
  14. By: Heufer, Jan; Hjertstrand, Per
    Abstract: This article provides a robust non-parametric approach to demand analysis based on a concept called homothetic efficiency. Homotheticity is a useful restriction or assumption but data rarely satisfy testable conditions. To overcome this problem, this article provides a way to estimate homothetic efficiency of consumption choices by consumers. The basic efficiency index suggested is similar to Afriat's (1972) efficiency index and Varian's (1993) violation index. It generalises Heufer's (2013b) two-dimensional concept to arbitrary dimensions and is motivated by a form of rationalisation similar to the one proposed by Halevy et al. (2012). The method allows to construct scalar factors which can be used to construct revealed preferred and worse sets. The approach also provides considerably more discriminatory power against irrational behaviour than standard utility maximisation. An application to experimental and household expenditure data illustrates how the method allows to recover preferences and increase test power.
    Abstract: Dieser Artikel stellt einen robusten nicht-parametrischen Ansatz für die Analyse von Nachfragedaten vor, der auf einem Konzept namens homothetische Effizienz basiert. Homothetie ist eine nützliche Annahme, aber reale Daten genügen den Testbedinungen nur selten. Um dieses Problem zu beheben, stellt dieser Artikel einen Ansatz zur Schätzung der homothetischen Effizienz von Konsumenentscheidungen vor. Der Effizienzindex weist Ähnlichkeiten zu Afriats (1972) Effizienzindex und Varians (1993) Verletzungsindex auf. Er verallgemeinert Heufers (2013) zwei-dimensionales Konzept für beliebige Dimensionen. Die Motivation für den Index folgt aus einer annährenden Abbildbarkeit durch Nutzenfunktionen, die Ähnlichkeiten zu einer Idee von Haley et al. (2012) aufweist. Die Methode erlaubt es, Skalarfaktoren zu bestimmen, welche zur Rekonstruktion von Besser- und Schlechtermengen verwendet werden kann. Der Ansatz erhöht außerdem die Teststärke gegen die alternative Hypothese von Zufallsverhalten deutlich. Eine Anwendung auf experimentelle Daten und Haushalts-Panel-Daten illustriert die Methode und zeigt deren Stärken auf.
    Keywords: demand theory,efficiency,experimental economics,homotheticity,non-parametric analysis,revealed preference,utility maximisation
    JEL: C14 D11 D12
    Date: 2014
  15. By: Heufer, Jan; Hjertstrand, Per
    Abstract: We provide two methods to compute the largest subset of a set of observations that is consistent with the Generalised Axiom of Revealed Preference. The algorithm provided by Houtman and Maks (1985) is not comput ationally feasible for larger data sets, while our methods are not limited in that respect. The first method is a variation of Gross and Kaiser's (1996) approximate algorithm and is only applicable for two-dimensional data sets, but it is very fast and easy to implement. The second method is a mixed-integer linear programming approach that is slightly more involved but still fast and not limited by the dimension of the data set.
    Abstract: Wir stellen zwei Methoden zur Bestimmung der größten Teilmenge an Beobachtungen, die mit den Generalised Axiom of Revealed Preference konsistent sind, vor. Der Algorithmus von Houtman und Maks (1985) ist für größere Datenmengen zu rechenintensiv um tatsächlich angewandt zu werden, während unsere Methoden in dieser Hinsicht nicht beschränkt sind. Die erste Methode ist eine Variation des Algorithmus von Gross und Kaiser (1996) und ist nur für zweidimensionale Datensätze geeignet. Allerdings ist er sehr schnell und einfach umzusetzten. Die zweite Methode ist ein Mixed-Integer Linear Programming Ansatz, der etwas umständlicher ist, dafür aber für beliebige Dimensionen geeignet ist.
    Keywords: demand theory,efficiency,nonparametric analysis,revealed preference,utility maximisation
    JEL: C14 D11 D12
    Date: 2014
  16. By: Füllbrunn, Sascha; Luhan, Wolfgang J.
    Abstract: Decision makers often take risky decisions on the behalf of others rather than for themselves. Competing theoretical models predict both, higher as well as lower levels of risk aversion when taking risk for others, and the experimental evidence is mixed. In our within-subject design, money managers have substantial responsibility by taking investment decisions for themselves and for a group of six clients, when payments are either fixed or perfectly aligned. We find that money managers invest significantly less for others than for themselves (cautious shift) which is mainly driven by a less risk averse sub sample. Digging deeper we find money managers to rather act in line with what they believe the clients would invest for themselves. We derive a responsibility weighting function to show that with a perfectly aligned payment the money manager weights egoistic and social preferences. Finally we bring our results in perspective with the mixed experimental literature.
    Abstract: Ein großer Teil risikoreicher, ökonomischer Entscheidungen wird von Dritten anstelle der Betroffenen getroffen. In solchen Fällen sagt die eine Klasse theoretischer Modelle geringere Risikoaversion voraus, eine andere Klasse aber höhere Risikoaversion im Vergleich zur Situation, bei der der Betroffene selbst die Entscheidung trifft. Die bisherigen empirischen Ergebnisse aus Laborexperimenten sind ebenso gemischt oder finden keine Unterschiede zwischen der Entscheidung für sich selbst oder für andere Personen. Wir verwenden ein 'within-subjects' für unser Experiment, bei dem Vermögensverwalter in unterschiedlichen Stufen für sich selbst, für eine Gruppe von Klienten, oder für sich selbst und eine Gruppe von Klienten Investitionsentscheidungen treffen. Wir erhöhen dabei die Soziale Verantwortung über die Größe der Gruppe von Investoren, um Verantwortungseffekte zu verstärken. Unsere Ergebnisse zeigen, dass das Risiko bei der Investition für andere signifikant geringer ist als bei der Investition für sich selbst. Dieses Aggregat-Ergebnis ist allerdings nur durch eine unterdurchschnittlich risikoaverse Subpopulation unserer Stichprobe getrieben. Eine genauere Analyse der Investitionsmotive zeigt, dass die Vermögensverwalter gemäß ihrer Erwartung der Klienten-Präferenzen handeln. Wir passen eine Nutzenfunktion mit Verantwortungs-Gewichten an und finden, dass die beobachtete Riskioaversion bei gemeinschaftlichen Investitionen durch egoistische und soziale Präferenzen erklärt werden kann. Abschließend stellen wir unsere Ergebnisse in den Kontext der bisherigen Literatur und versuchen die gemischten, bisherigen Ergebnisse aufgrund unserer Erkenntnisse zu erklären.
    Keywords: financial decision making,social responsibility,decision making for others,risk preferences,experiment
    JEL: C91 D81 G11
    Date: 2015
  17. By: Elisa Pagani (Department of Economics (University of Verona))
    Abstract: The aim of this survey is to provide an overview of the main definitions of certainty equivalent and its applications in the one-dimensional and multidimensional framework. We also show the relationships between the concept of certainty equivalent and other definitions related to different fields. In particular, we focus on financial and economic approaches that imply risk or inequality measurement.
    Keywords: certainty equivalent, risk, inequality, eciency, willingness to pay.
    JEL: D81 D63 I30
    Date: 2015–06
  18. By: Gervasio Antonelli (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo"); Gian Italo Bischi (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo"); Fabio Tramontana (Department of Economics and Management,University of Pavia); Elena Viganò (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")
    Abstract: The concept of postmodern consumer plays a central role within the debate started in the early 80s concerning the economic, social and cultural transformation in developed countries in the years following the end of the Second World War; a change that was interpreted as evolving from a modern towards a postmodern society. According to this literature, postmodern conditions have a significant impact on the consumer, especially at the level of his/her psychological characteristics. Within this new framework the consumer is viewed as a subject who is more interested in the symbolic or cultural value of products and services rather than the value of their function and utility. At the same time, consumers are represented as active players within the market, where they exercise their freedom to move in search of signs symbols and experiences through which they can communicate their identity. The figure of the postmodern consumer is difficult to interpret within the framework of standard neoclassical theories on consumers. At the same time, it highlights the shortcomings of this theoretical approach in studying the behaviour of postmodern consumers. These shortcomings are likely to be more relevant when considering the consumers of food products, given the strong nexus between consumption and the well being of consumers, along with the symbolic and cultural value that food products encompass. The main goal of this paper consists in providing an interdisciplinary overview of postmodern consumers of food products, through the analysis of scientific contributions, mainly in the areas of behavioural economics, sociology and psychology.
    Date: 2014
  19. By: Olekseyuk, Zoryana; Schürenberg-Frosch, Hannah
    Abstract: CGE models are widely used for policy evaluation and impact analysis especially with respect to trade reforms, tax reforms, energy sector reform and development policy analysis. However, the results of such models are often argued to be sensitive to the choice of exogenous parameters such as trade elasticities. Several authors show that the choice of the so-called Armington elasticities in the import demand function has a strong influence on the simulation results. Most existing estimates of Armington elasticities are only for the US. The few studies for other countries find substantially differing results. Nevertheless, many CGE modelers simply adopt the elasticities from the literature. This paper aims at providing estimated elasticities based on recent data for a larger group of European countries. Using cointegration and panel fixed effects analyses we estimate the first order condition resulting from cost minimization or utility maximization subject to the CES subutility or cost function in imports and domestic goods. The results show a rather large variation across sectors and countries and the magnitude is only partly comparable to the US elasticities. Moreover, in a small CGE application we are able to show that changing the elasticity set has a quantitative and even qualitative impact on CGE model results, which confirms the concern that one might end up with biased results due to a misspecification of the elasticities.
    Abstract: Berechenbare allgemeine Gleichgewichtsmodelle (engl CGE) finden weit verbreitet in der Politikberatung und Politikfolgenabschätzung Anwendung. Sie werden insbesondere zur Analyse von Handelspolitik, Steuerpolitik, Klimafolgenabschätzung und Entwicklungspolitik eingesetzt. Die Ergebnisse der Modelle gelten aber als anfällig bzgl. der Wahl exogener Modellparameter, im Besonderen der Wahl von Elastizitäten. In verschiedenen Studien konnte gezeigt werden, dass insbesondere die Wahl der Handelselastizitäten entscheidenden Einfluss auf Simulationsergebnisse haben kann. Aufgrund des erheblichen Aufwands, der zur Schätzung dieser sog. Armingtonelastizitäten notwendig ist, übernehmen dennoch viele Modelle die Elastizitätensätze anderer Länder (meist australische oder US-amerikanische Elastizitätensätze), ohne ihre Modellergebnisse auf Robustheit gegenüber der Parameterwahl zu schätzen. Der vorliegende Beitrag versucht diesen Kritikpunkt anzugehen, indem Elastizitäten für ein Panel von europäischen Staaten geschätzt werden. Die Autorinnen finden eine relativ breite Streuung der Ergebnisse und insb. erhebliche Unterschiede über die Länder und nur in manchen Fällen Ergebnisse der Größenordnung der am weitesten verbreiteten Elastizitäten. In einer beispielhaften Modellanwendung werden die geschätzten Elastizitäten alternativ in einem etablierten Modell verwandt, statt der dort enthaltenen. Im Ergebnis zeigt sich, dass es nicht nur einen quantitativen, sondern sogar z.T. einen qualitativen Einfluss auf die Simulation hat, welcher Elastizitätensatz Verwendung findet. Somit kann geschlussfolgert werden, dass die Gefahr einer Missspezifikation bei nicht ausreichend fundierten Parametern groß ist.
    Keywords: Armington,trade elasticities,computable general equilibrium,Europe
    JEL: F14 C68 F17
    Date: 2014

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