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on Utility Models and Prospect Theory |
| By: | Alfred Galichon (Département d'économie); Scott Kominers (Harvard University); Simon Weber (Département d'économie) |
| Abstract: | We introduce an empirical framework for models of matching with imperfectly transferable utility and unobserved heterogeneity in tastes. Our framework includes as special cases the classic fully- and non-transferable utility models, collective models, and settings with taxes on transfers, deadweight losses, and risk aversion. We characterize equilibrium and conditions for identification, and derive comparative statics. |
| Keywords: | Sorting; Matching; Marriage Market; Becker-Coase Theorem; Intrahousehold Allocation; Imperfectly Transferable Utility |
| JEL: | C78 D3 J21 J23 J31 J41 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/5kmb4ke32h9ur9159sab6hvkck&r=upt |
| By: | Iwata, Shinichiro; Naoi, Michio |
| Abstract: | The literature has shown that an increase in housing wealth, driven by unexpected shocks to house prices, exerts a positive effect on the birthrates of homeowners. According to canonical models, a decrease in housing wealth has a symmetric negative impact on the fertility behavior of households. That is, housing gains and losses of the same size should have identical quantitative effects on fertility. In comparison, prospect theory suggests that people care more about housing losses than equivalent gains, leading to an asymmetric effect of housing wealth on the fertility decision. In our model, we weight the utility from childbirth by the utility from the price of housing, where the reference level is the house price in previous years. The theoretical model suggests that the probability of childbirth is kinked at a reference level of housing wealth and the wealth effects are discontinuously larger below this kink than above it. We test this theoretical prediction using longitudinal data on Japanese households. Consistent with this theoretical prediction, our empirical results show that the fertility responses of homeowners, as measured by the birth hazard rate, are substantially larger when housing wealth is below its reference level than when it is above its reference level. |
| Keywords: | childbirth; housing price; wealth; homeownership; reference-dependent preferences; loss aversion |
| JEL: | J13 R21 |
| Date: | 2015–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65360&r=upt |
| By: | Khai Chiong; Alfred Galichon (Département d'économie); Matt Shum |
| Abstract: | Using results from convex analysis, we characterize the identification and estimation of dynamic discrete-choice models based on the random utility framework. We show that the conditional choice probabilities and the choice specific payoffs in these models are related in the sense of conjugate duality. Based on this, we propose a new two-step estimator for these models; interestingly, the first step of our estimator involves solving a linear program which is identical to the classic assignment (two-sided matching) game of Shapley and Shubik (1971). The application of convex-analytic tools to dynamic discrete choice models, and the connection with two-sided matching models, is new in the literature. |
| Keywords: | Discret choice model; Mass Transport Approach (MTA); Conjugate duality |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7svo6civd6959qvmn4965cth1d&r=upt |
| By: | Federico Echenique (California Institute of Technology (Caltech)); Alfred Galichon (Département d'économie) |
| Abstract: | We characterize solutions for two-sided matching, both in the transferable - and in the nontransferable - utility frameworks, using a cardinal formulation. Our approach makes the comparison of the matching models with and without transfers particularly transparent. We introduce the concept of a no-trade matching to study the role of transfers in matching. A no-trade matching is one in which the availability of transfers do not affect the outcome. |
| Keywords: | Matching; Stability; Efficiency |
| JEL: | C78 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/5k6c74nfqf91aa74v72q2ca5tm&r=upt |
| By: | Raicho Bolijov (Department of Economics, Ecole Polytechnique); Alfred Galichon (Département d'économie) |
| Abstract: | This paper provides closed-form formulas for a multidimensional two-sided matching problem with transferable utility and heterogeneity in tastes. When the matching surplus is quadratic, the marginal distributions of the characteristics are normal, and when the heterogeneity in tastes is of the continuous logit type, as in Choo and Siow (2006), we show that the optimal matching distribution is also jointly normal and can be computed in closed form from the model primitives. Conversely, the quadratic surplus function can be identified from the optimal matching distribution, also in closed-form. The analytical formulas make it computationally easy to solve problems with even a very large number of matches and allow for quantitative predictions about the evolution of the solution as the technology and the characteristics of the matching populations change. |
| Keywords: | Matching; Marriage; Assignment |
| JEL: | C78 D61 C13 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/34a8d5vcod96oo2cch2e7gs4v6&r=upt |
| By: | Julian Conrads (University of Cologne); Tommaso Reggiani (University of Cologne); Rainer Michael Rilke (University of Cologne) |
| Abstract: | Ambiguity about the chances of winning represents a key aspect in lotteries. By means of a controlled field experiment, we exogenously vary the degree of ambiguity about the winning chances of lotteries organized to incentivize the contribution for a public good. In one people have been simply informed about the maximum number of potential participants (i.e., the number of lottery tickets released). In a second treatment this information has been omitted as in all traditional lotteries. Our general finding shows that simply reducing the degree of ambiguity of the lottery leads to a sizable and significant increase (67%) in the participation rate. This result is robust to alternative prize configurations. |
| Keywords: | ambiguity, lottery, field experiment |
| JEL: | C93 D03 D81 |
| Date: | 2015–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:cgr:cgsser:06-03&r=upt |
| By: | Postek, Krzysztof (Tilburg University, Center For Economic Research); Ben-Tal, A. (Tilburg University, Center For Economic Research); den Hertog, Dick (Tilburg University, Center For Economic Research); Melenberg, Bertrand (Tilburg University, Center For Economic Research) |
| Abstract: | In this paper we consider ambiguous stochastic constraints under partial information consisting of means and dispersion measures of the underlying random parameters. Whereas the past literature used the variance as the dispersion measure, here we use the mean absolute deviation from the mean (MAD). This makes it possible to use the old result of Ben-Tal and Hochman (1972) in which tight upper and lower bounds on the expectation of a convex function of a random variable are given. We use these bounds to derive<br/>exact robust counterparts of expected feasibility of convex constraints and to construct new safe tractable approximations of chance constraints. Numerical examples show our method to be applicable to numerous applications of Robust Optimization, e.g., where implementation error or linear decision rules are present.<br/>Also, we show that the methodology can be used for optimization the average-case performance of worst-case<br/>optimal Robust Optimization solutions. |
| Keywords: | robust optimization; ambiguity; stochastic programming; chance constraints |
| JEL: | C61 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:d718e419-a375-4707-b206-eb5ab1557e66&r=upt |
| By: | Ben-Tal, A. (Tilburg University, Center For Economic Research); Brekelmans, Ruud (Tilburg University, Center For Economic Research); den Hertog, Dick (Tilburg University, Center For Economic Research); Vial, J.P. |
| Abstract: | Robust optimization is a methodology that can be applied to problems that are affected by uncertainty in the problem’s parameters. The classical robust counterpart (RC) of the problem requires the solution to be feasible for all uncertain parameter values in a so-called uncertainty set, and offers no guarantees for parameter values outside this uncertainty set. The globalized<br/>robust counterpart (GRC) extends this idea by allowing controlled constraint<br/>violations in a larger uncertainty set. The constraint violations are controlled by<br/>the distance of the parameter to the original uncertainty set. We derive tractable<br/>GRCs that extend the initial GRCs in the literature: our GRC is applicable to<br/>nonlinear constraints instead of only linear or conic constraints, and the GRC<br/>is more flexible with respect to both the uncertainty set and distance measure<br/>function, which are used to control the constraint violations. In addition, we<br/>present a GRC approach that can be used to provide an extended trade-off<br/>overview between the objective value and several robustness measures. |
| Keywords: | robust optimization; globalized robust counterpart; constraint violations |
| JEL: | C61 C63 M11 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:05c1b5b6-5b26-46f6-bd3a-ade07f4c5f04&r=upt |
| By: | Ingebretsen Carlson, Jim (Department of Economics, Lund University) |
| Abstract: | This paper presents an auction procedure which is of particular interest when short execution times are of importance. It is based on a method for approximating the bidders' preferences over two types of items when complementarity between the two may exist. In particular, linear approximations of the bidders' indifference curves are made. The resulting approximated preference relation is shown to be complete and transitive at any given price vector. It is shown that an approximated Walrasian equilibrium always exists if the approximated preferences of the bidders comply with the gross substitutes condition. Said condition also ensures that the set of approximated equilibrium prices forms a complete lattice. A process is proposed which is shown to always reach the smallest approximated Walrasian price vector. |
| Keywords: | Approximate auction; one-round auction; non-quasi-linear preferences; approximated preferences |
| JEL: | D44 |
| Date: | 2015–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2015_019&r=upt |
| By: | Franz Dietrich; Christian List |
| Abstract: | Behaviourism is the view that preferences, beliefs, and other mental states in social-scientific theories are nothing but constructs re-describing people’s behaviour. Mentalism is the view that they capture real phenomena, on a par with the unobservables in science, such as electrons and electromagnetic fields. While behaviourism has gone out of fashion in psychology, it remains influential in economics, especially in ‘revealed preference’ theory. We defend mentalism in economics, construed as a positive science, and show that it fits best scientific practice. We distinguish mentalism from, and reject, the radical neuroeconomic view that behaviour should be explained in terms of brain processes, as distinct from mental states. |
| Keywords: | mentalism; behaviourism; revealed preference; decision theory; scientific realism |
| JEL: | J1 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:62444&r=upt |