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on Utility Models and Prospect Theory |
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Issue of 2017‒07‒02
nine papers chosen by |
| By: | Federica Ceron (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Vassili Vergopoulos (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) |
| Abstract: | This article reconsiders the issue of Bayesian aggregation by pointing at a conflict that may arise between two logically independent dominance criteria, Pareto dominance and statewise dominance, that are commonly imposed on social preferences. We propose a weaker dominance axiom that restricts statewise dominance to Pareto dominant alternatives and Pareto dominance to statewise dominant alternatives. The associated aggregation rule is a convex combination of two components., the first being a weighted sum of the individuals' subjective expected utility (SEU) functional, the second being a social SEU functional, with associated social utility function and social belief. Such representation establishes the existence of a trade off between adherence to the Pareto principle and compliance with statewise dominance. We then investigate what are the consequences of adding to our assumptions either of the two dominance criteria in their full force and obtain that each of them is equivalent to discarding the other, unless there is essentially a common prior probability. |
| Abstract: | Cet article étudie l'agrégation des préférences Bayesiennes en examinant un conflit potentiel entre deux critères de dominance communément imposés sur les préférences sociales, la dominance de Pareto et la dominance stochastique. Il propose une notion de dominance plus faible qui contraint la validité de la dominance stochastique à des alternatives dominantes au sens de Pareto, ou, de manière équivalente, celle du principe de Pareto à des alternatives dominantes au sens stochastique. La règle d'agrégation qui en résulte est une combinaison convexe de deux composantes, une somme pondérée des fonctionnelles individuelles et l'espérance d'utilité sociale. Cette règle établit l'existence d'un arbitrage entre adhérence au principe de Pareto et conformité à la dominance stochastique. |
| Keywords: | Pareto dominance,Monotonicity,Preference aggregation,Social choice,Subjective expected utility,Dominance de Pareto,monotonicité,agrégation des préférences,choix social,utilité espérée subjective |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01539444&r=upt |
| By: | Stark, Oded |
| Abstract: | This paper adds three dimensions to the received literature: it models migration when the individuals' preferences regarding their relative income are ordinal, it works out the resulting spatial steady-state distribution of the individuals, and it shows that the aggregate of the individuals' migration choices in the spatial steady-state distribution sums up to the social optimum. This finding does not apply when the individuals' preferences regarding their relative income are cardinal. We highlight the importance of the assumption about the nature of the individuals' social preferences (whether ordinal or cardinal) to studying and predicting their migration behavior, and to elucidating the consequences of that behavior for social welfare. |
| Keywords: | Ordinal preferences,Distaste for low relative income,An ordinal measure of income relative deprivation,Interregional migration,Steady-state spatial distribution,Social Welfare |
| JEL: | C61 C62 D50 D60 D62 I31 R13 R23 Z13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:98&r=upt |
| By: | Daniel McFadden |
| Abstract: | A common problem in applied economics is to determine the impact on consumers of changes in prices and attributes of marketed products as a consequence of policy changes. Examples are prospective regulation of product safety and reliability, or retrospective compensation for harm from defective products or misrepresentation of product features. This paper reexamines the foundations of welfare analysis for these applications. We consider discrete product choice, and develop practical formulas that apply when discrete product demands are characterized by mixed multinomial logit models and policy changes affect hedonic attributes of products in addition to price. We show that for applications that are retrospective, or are prospective but compensating transfers are hypothetical rather than fulfilled, a Market Compensating Equivalent measure that updates Marshallian consumer surplus is more appropriate than Hicksian compensating or equivalent variations. We identify the welfare questions that can be answered in the presence of partial observability on the preferences of individual consumers. We examine the welfare calculus when the experienced-utility of consumers differs from the decision-utility that determines market demands, as the result of resolution of contingencies regarding attributes of products and interactions with consumer needs, or as the result of inconsistencies in tastes and incomplete optimizing behavior. We conclude with an illustrative application that calculates the welfare impacts of unauthorized sharing of consumer information by video streaming services. |
| JEL: | D11 D12 D60 D61 K13 L51 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23535&r=upt |
| By: | Christian Dustmann (University College London and CReAM); Francesco Fasani (Queen Mary University of London, CReAM, CEPR and IZA); Xin Meng (Australian National University, CReAM and IZA); Luigi Minale (Universidad Carlos III de Madrid, CReAM and IZA) |
| Abstract: | This paper analyses the relation between individual migrations and the risk attitudes of other household members when migration is a household decision. We develop a simple model that implies that which member migrates depends on the distribution of risk attitudes among all household members, and that the risk diversification gain to other household members may induce migrations that would not take place in an individual framework. Using unique data for China on risk attitudes of internal (rural-urban) migrants and the families left behind, we empirically test three key implications of the model: (i) that conditional on migration gains, less risk averse individuals are more likely to migrate; (ii) that within households, the least risk averse individual is more likely to emigrate; and (iii) that across households, the most risk averse households are more likely to send migrants as long as they have at least one family member with sufficiently low risk aversion. Our results not only provide evidence that migration decisions are taken on a household level but also that the distribution of risk attitudes within the household affects whether a migration takes place and who will emigrate. |
| Keywords: | : risk aversion, internal migration, household decisions |
| JEL: | J61 R23 D81 |
| Date: | 2017–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:csl:devewp:423&r=upt |
| By: | Coles, Melvyn G; Francesconi, Marco |
| Abstract: | This paper develops a new equilibrium model of two-sided search where ex-ante heterogeneous individuals have general payoff functions and vectors of attributes. The analysis applies to a large class of models, from the non-transferable utility case to the collective household case with bargaining. The approach is powerful for it identifies a simple algorithm which, in the empirical application, is found to rapidly converge to equilibrium. Using indirect inference, we identify the differential effects of women's ability and charm on female match incentives. We use these results to assess the separate impacts of the arrival of equal opportunities for women in the labor market and the advent of the contraceptive pill on female economic activity and matching. |
| Keywords: | Contraceptive pill; Female labor supply; Marriage; Two-sided search; Multiple attribute matching |
| JEL: | C6 J0 J1 N3 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12095&r=upt |
| By: | Mira Frick (Cowles Foundation, Yale University); Ryota Iijima (Cowles Foundation, Yale University); Tomasz Strzalecki (Harvard University) |
| Abstract: | Under dynamic random utility, an agent (or population of agents) solves a dynamic decision problem subject to evolving private information. We analyze the fully general and non-parametric model, axiomatically characterizing the implied dynamic stochastic choice behavior. A key new feature relative to static or i.i.d. versions of the model is that when private information displays serial correlation, choices appear history dependent: different sequences of past choices reflect different private information of the agent, and hence typically lead to different distributions of current choices. Our axiomatization imposes discipline on the form of history dependence that can arise under arbitrary serial correlation. Dynamic stochastic choice data lets us distinguish central models that coincide in static domains, in particular private information in the form of utility shocks vs. learning, and to study inherently dynamic phenomena such as choice persistence. We relate our model to specifications of utility shocks widely used in empirical work, highlighting new modeling tradeoffs in the dynamic discrete choice literature. Finally, we extend our characterization to allow past consumption to directly affect the agent’s utility process, accommodating models of habit formation and experimentation. |
| Keywords: | Dynamic stochastic choice, Random utility, History dependence, Serially correlated utilities, Consumption persistence, Learning |
| JEL: | D81 D83 D90 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2092&r=upt |
| By: | Agnes Szabo-Morvai (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and HETFA Institute); Anna Lovasz (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and ELTE University); Ewa Cukrowska-Torzewska (University of Warsaw, Faculty of Economic Sciences); Mariann Rigo (Institute of Gerontology at TU Dortmund University); Andrea Kiss (Duke University, North Carolina) |
| Abstract: | The effect of objective feedback on performance is often studied, while subjective feedback is largely neglected in the economics literature. We estimate the impact of positive subjective feedback - encouragement and praise - on effort and performance, and compare the effect by gender. We use a computer game, during which players are randomly chosen to be given either no feedback (control) or positive subjective feedback (treatment), and analyze the treatment effect on effort (clicks) and performance (score). Based on previous economic and psychology theories, we test the pathways through which subjective feedback can have an impact: on (1) effort, due to the updating of expected performance or direct (dis)utility from the feedback, or (2) marginal productivity. The results point to significant differences in the mean effects of subjective feedback by gender. For women, encouragement has a significant positive effect while praise has a significant negative effect on performance, while men are less responsive to subjective feedback in general. Gender differences are mostly explained by different confidence distributions, while there are no gender differences in treatment effects if confidence level is held fixed. The effects are mostly realized through changes in effort. These results suggest that better targeted supervisory communication in schools or workplaces can improve the performance of lower-confidence individuals and thereby decrease the gender gap in performance. |
| Keywords: | gender differences, supervisory feedback, experimental economics |
| JEL: | C90 D03 J16 M54 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:has:bworkp:1705&r=upt |
| By: | Takahiro Miura (Graduate School of Economics, Osaka University); Keigo Inukai (Osaka University, ISER); Masaru Sasaki (Graduate School of Economics, Osaka University. IZA.) |
| Abstract: | This paper tests the effect of risk preferences on search activities by using a labo- ratory experiment. We used an infinite-horizon sequential search model with no recall in which an individual gains over search. We elicit the risk preferences from observed search activities of participants and from the multiple price list (MPL) method. We found the statistically significant effect of risk preferences elicited from the MPL method on the duration of search. The search duration is on average shorter for a risk averse individual than for risk loving one, which is consistent with the theoretical prediction. The significant effect of risk preferences on search activities has not been observed in the previous literature that used search model with recall in which an individual pays from the initial endowment over search (Schunk 2009, Schunk and Winter 2009). Therefore, the correlation between risk preferences and search activities depends on the type of search models. |
| Keywords: | Risk preference, Sequential search, MPL |
| JEL: | D81 D83 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1717&r=upt |
| By: | Howden, David; Kampe, Joakim |
| Abstract: | We begin with an admittedly simplistic statement: “civilization” is best represented by the increased availability of utility providing goods and services. In other words, civilization is synonymous with economic development. This paper concerns three questions. First, how does civilization develop? Second, what is time preference and how does it affect the development of civilization, or what we may call the “process of civilization.” Third, what factors affect time preference, and how do changes in time preference affect this civilizing process? Through these three questions, we provide the theoretical why civilization developed, instead of the more common historical how civilization actually developed. |
| Keywords: | time preference, interest rates, civilization |
| JEL: | O12 O19 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79805&r=upt |