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on Utility Models and Prospect Theory |
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Issue of 2018‒05‒21
eight papers chosen by |
| By: | Abraham Neyman |
| Abstract: | This paper characterizes the preferences over bounded infinite utility streams that satisfy the time-value of money principle and an additivity property, and preferences that in addition are impatient. Based on this characterization, the paper introduces a concept of optimization that is robust to a small imprecision in the specification of the preference, and proves that the set of feasible streams of payoffs of a finite Markov decision process admits such a robust optimization. |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp718&r=upt |
| By: | Yilong Xu (University of Heidelberg); Xiaogeng Xu (Norwegian School of Economics); Steven Tucker (University of Waikato) |
| Abstract: | Important ?nancial and medical decisions are often made on behalf of others. We study whether and how people’s ambiguity attitudes differ when deciding for others as compared to deciding for oneself in the loss domain. Our results are consistent with the loss part of the fourfold pattern: ambiguity aversion for low likelihood losses and ambiguity neutrality for moderate likelihood losses. This pattern holds both when deciding for oneself and for others. We ?nd no differences in ambiguity attitudes between self- and other-regarding decision-making. |
| Keywords: | ambiguity attitudes; decision-making for others; losses and uncertainty |
| JEL: | D81 C91 |
| Date: | 2018–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:18/07&r=upt |
| By: | Suen, Richard M. H. |
| Abstract: | This paper analyzes the risk attitude and investment behavior of a group of heterogeneous consumers who face an undesirable background risk. It is shown that standard risk aversion at the individual level does not imply standard risk aversion at the group level under efficient risk sharing. This points to a potential divergence between individual and collective investment choices in the presence of background risk. We show that if the members' absolute risk tolerance is increasing and satisfies a strong form of concavity, then the group has standard risk aversion. |
| Keywords: | Standard risk aversion; Efficient risk sharing; Background risk; Portfolio choice. |
| JEL: | D70 D81 G11 |
| Date: | 2018–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86499&r=upt |
| By: | Shuenn-Jyi Sheu; Li-Hsien Sun; Zheng Zhang |
| Abstract: | We propose an optimal portfolio problem in the incomplete market where the underlying assets depend on economic factors with delayed effects, such models can describe the short term forecasting and the interaction with time lag among different financial markets. The delay phenomenon can be recognized as the integral type and the pointwise type. The optimal strategy is identified through maximizing the power utility. Due to the delay leading to the non-Markovian structure, the conventional Hamilton-Jacobi-Bellman (HJB) approach is no longer applicable. By using the stochastic maximum principle, we argue that the optimal strategy can be characterized by the solutions of a decoupled quadratic forward-backward stochastic differential equations(QFBSDEs). The optimality is verified via the super-martingale argument. The existence and uniqueness of the solution to the QFBSDEs are established. In addition, if the market is complete, we also provide a martingale based method to solve our portfolio optimization problem, and investigate its connection with the proposed FBSDE approach. Finally, two particular cases are analyzed where the corresponding FBSDEs can be solved explicitly. |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1805.01118&r=upt |
| By: | Anna Maria Mayda; Giovanni Peri; Walter Steingress |
| Abstract: | In this paper, we estimate the effect on housing prices of the expansion of the Vancouver SkyTrain rapid transit network during the period 2001–11. We extend the canonical residential sorting equilibrium framework to include commuting time in the household utility function. We estimate household preferences in the sorting model using confidential micro data and geographic information systems (GIS) data on the SkyTrain network. Using these preference estimates and observed data for 2001, we simulate the equilibrium effects of expanding the SkyTrain. In our counterfactual analysis, the SkyTrain expansion increases housing prices not only in neighborhoods where the expansion occurred, but also in those with access to pre-existing segments of the network. We show how these network housing price effects depend on household commuting patterns, and discuss the implications of our results for targeted taxation policies designed to capture the housing price appreciation stemming from a public transit investment. |
| Keywords: | International topics, Labour markets |
| JEL: | F22 J61 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:18-19&r=upt |
| By: | Victor Aguirregabiria; Jiaying Gu; Yao Luo |
| Abstract: | We study the identification and estimation of structural parameters in dynamic panel data logit models where decisions are forward-looking and the joint distribution of unobserved heterogeneity and observable state variables is nonparametric, i.e., fixed-effects model. We consider models with two endogenous state variables: the lagged decision variable, and the time duration in the last choice. This class of models includes as particular cases important economic applications such as models of market entry-exit, occupational choice, machine replacement, inventory and investment decisions, or dynamic demand of differentiated products. The identification of structural parameters requires a sufficient statistic that controls for unobserved heterogeneity not only in current utility but also in the continuation value of the forward-looking decision problem. We obtain the minimal sufficient statistic and prove identification of some structural parameters using a conditional likelihood approach. We apply this estimator to a machine replacement model. |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1805.04048&r=upt |
| By: | Christoph Aymanns; Jakob Foerster; Co-Pierre Georg |
| Abstract: | We model the spread of news as a social learning game on a network. Agents can either endorse or oppose a claim made in a piece of news, which itself may be either true or false. Agents base their decision on a private signal and their neighbors’ past actions. Given these inputs, agents follow strategies derived via multi-agent deep reinforcement learning and receive utility from acting in accordance with the veracity of claims. Our framework yields strategies with agent utility close to a theoretical, Bayes optimal benchmark, while remaining flexible to model re-specification. Optimized strategies allow agents to correctly identifymostfalseclaims, whenallagentsreceiveunbiasedprivatesignals. However, anadversary’s attempt to spread fake news by targeting a subset of agents with a biased private signal can be successful. Even more so when the adversary has information about agents’ network position or private signal. When agents are aware of the presence of an adversary they re-optimize their strategies in the training stage and the adversary’s attack is less effective. Hence, exposing agents to the possibility of fake news can be an effective way to curtail the spread of fake news in social networks. Our results also highlight that information about the users’ private beliefs and their social network structure can be extremely valuable to adversaries and should be well protected. |
| Keywords: | social learning, networks, multi-agent deep reinforcement learning |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2018:04&r=upt |
| By: | Mikołaj Czajkowski (Faculty of Economic Sciences, University of Warsaw); Marianne Zandersen (Department of Environmental Science, Aarhus University); Uzma Aslam (Department of Environmental Science, Aarhus University; Iqra University Islamabad Campus); Ioannis Angelidis (Department of Environmental Science, Aarhus University); Thomas Becker (Department of Environmental Science, Aarhus University); Wiktor Budziński (Faculty of Economic Sciences, University of Warsaw); Katarzyna Zagórska (Faculty of Economic Sciences, University of Warsaw) |
| Abstract: | The Baltic Sea plays a significant role for recreational use in the nine littoral countries with more than 70% of the population visiting the coast, representing some 80 million recreation visits annually. Understanding the values associated with coastal recreation and the potential welfare changes of improving the state of the Baltic Sea is important for managing the marine environment. We estimate a spatially explicit travel cost model of coastal site recreation to the Baltic Sea to assess the welfare of accessing individual sites, identify recreational hotspots and simulate the welfare changes resulting from improving environmental and infrastructure conditions. The total benefits associated with the Baltic Sea based recreation amount to 11.4 billion EUR per year with significant variation across sites. Improving water quality and infrastructure boost the recreational value by nearly 9 billion EUR, almost doubling the recreational benefits compared to current conditions. |
| Keywords: | Recreational benefits, Site choice, Random Utility Model, Baltic Sea, Blue Flag |
| JEL: | L83 Q26 Q51 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2018-11&r=upt |