nep-upt New Economics Papers
on Utility Models and Prospect Theory
Issue of 2019‒01‒07
29 papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Non-Existence of Representative Agents By Jackson, Matthew O.; Yariv, Leeat
  2. ImpliedAmbiguity:Mean-Variance Efficiency andPricingErrors By Chiaki Hara; Toshiki Honda
  3. Analysis of the core under inequality-averse utility functions By Seiji Takanashi
  4. Valuation Risk Revalued By Oliver de Groot; Alexander W. Richter; Nathaniel A. Throckmorton
  5. Valuation Risk Revalued By Oliver de Groot; Alexander W. Richter; Nathaniel A. Throckmorton
  6. Does Random Consideration Explain Behavior when Choice is Hard? Evidence from a Large-scale Experiment By Victor H. Aguiar; Maria Jose Boccardi; Nail Kashaev; Jeongbin Kim
  7. The Effects of Risk and Ambiguity Aversion on Technology Adoption: Evidence from Aquaculture in Ghana By Christian Crentsil; Adelina Gschwandtner; Zaki Wahhaj
  8. Trading ambiguity: a tale of two heterogeneities By Sujoy Mukerji; Han Ozsoylev; Jean-Marc Tallon
  9. M Equilibrium: A dual theory of beliefs and choices in games By Jacob K. Goeree; Philippos Louis
  10. Portfolio Optimization for Cointelated Pairs: SDEs vs. Machine Learning By Babak Mahdavi-Damghani; Konul Mustafayeva; Stephen Roberts; Cristin Buescu
  11. Competitive Equilibrium Cycles for Small Discounting in Discrete-Time Two-Sector Optimal Growth Models By Alain Venditti
  12. Asymptotics for Small Nonlinear Price Impact: a PDE Homogenization Approach to the Multidimensional Case By Erhan Bayraktar; Thomas Caye; Ibrahim Ekren
  13. Consumption, Investment, and Healthcare with Aging By Paolo Guasoni; Yu-Jui Huang
  14. Multitask Learning Deep Neural Network to Combine Revealed and Stated Preference Data By Shenhao Wang; Jinhua Zhao
  15. Duesenberry's Theory of Consumption: Habit, Learning, and Ratcheting By Kyoung Jin Choi; Junkee Jeon; Hyeng Keun Koo
  16. Incentivizing the Dynamic Workforce: Learning Contracts in the Gig-Economy By Alon Cohen; Moran Koren; Argyrios Deligkas
  17. Consumption smoothing and the welfare cost of uncertainty By Alem, Yonas; Colmer, Jonathan
  18. Influence of High-Speed Railway System on Inter-city Travel Behavior in Vietnam By Tho V. Le; Junyi Zhang; Makoto Chikaraishi; Akimasa Fujiwara
  19. Monetary Policy and Reaching for Income By Kent Daniel; Lorenzo Garlappi; Kairong Xiao
  20. Mutual Conversion Between Preference Maps And Cook-Seiford Vectors By Fujun Hou
  21. Equilibrium Prices of the Market Portfolio in the CAPM with Incomplete Financial Markets By Chiaki Hara
  22. Conned by a Cashback? Disclosure, Nudges and Consumer Rationality in Mortgage Choice By Michael King; Anuj Singh
  23. Sequential competition and the strategic origins of preferential attachment By Antoine Mandel; Xavier Venel
  24. New method to detect convergence in simple multi-period market games with infinite large strategy spaces By Jørgen-Vitting Andersen; Philippe De Peretti
  25. Economics of Human-AI Ecosystem: Value Bias and Lost Utility in Multi-Dimensional Gaps By Daniel Muller
  26. Understanding the different pre and post peak adoption drivers in the process of Mobile Social Networking diffusion By Giovannetti, Emanuele; Hamoudia, Mohsen
  27. Equity Concerns are Narrowly Framed By Christine L. Exley; Judd B. Kessler
  28. Managing Expectations without Rational Expectations By George-Marios Angeletos; Karthik A. Sastry
  29. Individual Credit Market Experience and Perception of Aggregate Bank Lending. Evidence from a Firm Survey By Jarko Fidrmuc; Christa Hainz; Werner Hölzl

  1. By: Jackson, Matthew O.; Yariv, Leeat
    Abstract: We characterize environments in which there exists a representative agent: an agent who inherits the structure of preferences of the population that she represents. The existence of such a representative agent imposes strong restrictions on individual utility functions, requiring them to be linear in the allocation and additively separable in any parameter that characterizes agents' preferences (e.g., a risk aversion parameter, a discount factor, etc.). Commonly used classes of utility functions (exponentially discounted utility functions, CRRA or CARA utility functions, logarithmic functions, etc.) do not admit a representative agent.
    Keywords: Collective Decisions; Preference Aggregation; Representative Agents; Revealed Preference
    JEL: D03 D11 D71 D72 E24
    Date: 2018–12
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:13397&r=all
  2. By: Chiaki Hara (Institute of Economic Research, Kyoto University); Toshiki Honda (Graduate School of Business Administration, Department of Business Administration, Hitotsubashi University)
    Abstract: We study the optimal portfolio choice problem for an ambiguity-averse investor having a utility function of the form of Klibanoff, Marinacci, and Mukerji (2005) and Maccheroni, Marinacci, and Ruffino (2013). We identify necessary and sufficient conditions for a given portfolio to be optimal for some ambiguity-averse investor. We also show that the smallest ambiguity aversion coefficient for the optimality of the given portfolio, which we term the implied ambiguity of the portfolio, is decreasing with respect to its Sharpe ratio. This relation can also be expressed in terms of the size of the pricing errors when the asset returns are regressed on the return of the portfolio. A numerical analysis is provided to find the ambiguity aversion implied by the U.S. equity market data.
    Keywords: Ambiguityaversion,optimalportfolio,Sharperatio,beta,alpha,mutualfundtheorem.
    JEL: D81 D91 G11 G12
    Date: 2018–10
    URL: http://d.repec.org/n?u=RePEc:kyo:wpaper:1004&r=all
  3. By: Seiji Takanashi (Graduate School of Information Science and Electrical Engineering, Kyushu University)
    Abstract: In this paper, we study cooperative games with the players whose pref- erences depend on all players’ allocations, which we refer to as the social preferences. The social preferences we study in this paper are represented by the utility functions proposed by Fehr and Schmidt (1999) or the util- ity functions proposed by Charness and Rabin (2002). First, we define and characterize the cores, which are the same as the standard core except that the utility functions are the Fehr-Schmidt or the Charness-Rabin type. We show that the Fehr-Schmidt type core becomes smaller if the players become more envious and that it may become larger or smaller if the players become more compassionate. We also show that the Charness-Rabin type core be- comes smaller if the players pay more attention to care about the minimal allocation and that it may become larger or smaller if the players pay more attention to care about the social welfare. Moreover, we analyze the alpha- core and the beta-core of the cooperative games consisting of players with these types of social preferences, as well as a new core concept that takes ac- count of networks among the players. We show that the Fehr-Schmidt type core is the smallest among these cores and that the alpha-core coincides with the beta-core under the Fehr-Schmidt utility functions.
    Keywords: Social preference, Inequality-aversion, Cooperative game, Core, Network
    JEL: C71 D63 D91
    Date: 2018–11
    URL: http://d.repec.org/n?u=RePEc:kyo:wpaper:1006&r=all
  4. By: Oliver de Groot (University of St Andrews); Alexander W. Richter (Federal Reserve Bank of Dallas); Nathaniel A. Throckmorton (College of William & Mary)
    Abstract: This paper shows the recent success of valuation risk (time-preference shocks in Epstein- Zin utility) in resolving asset pricing puzzles rests sensitively on an undesirable asymptote that occurs because the preference specification fails to satisfy a key restriction on the weights in the Epstein-Zin time-aggregator. In a Bansal-Yaron long-run risk model, our revised valuation risk specification that satisfies the restriction provides a superior empirical fit. The results also show that valuation risk no longer has a major role in matching the mean equity premium and risk-free rate but is crucial for matching the volatility and autocorrelation of the risk-free rate.
    Keywords: Epstein-Zin Utility; Valuation Risk; Equity Premium Puzzle; Risk-Free Rate Puzzle
    JEL: D81 G12
    Date: 2018–12–17
    URL: http://d.repec.org/n?u=RePEc:san:wpecon:1805&r=all
  5. By: Oliver de Groot (University of St Andrews); Alexander W. Richter (Federal Reserve Bank of Dallas); Nathaniel A. Throckmorton (College of William & Mary)
    Abstract: This paper shows the recent success of valuation risk (time-preference shocks in Epstein- Zin utility) in resolving asset pricing puzzles rests sensitively on an undesirable asymptote that occurs because the preference specification fails to satisfy a key restriction on the weights in the Epstein-Zin time-aggregator. In a Bansal-Yaron long-run risk model, our revised valuation risk specification that satisfies the restriction provides a superior empirical fit. The results also show that valuation risk no longer has a major role in matching the mean equity premium and risk-free rate but is crucial for matching the volatility and autocorrelation of the risk-free rate.
    Keywords: Epstein-Zin Utility; Valuation Risk; Equity Premium Puzzle; Risk-Free Rate Puzzle
    JEL: D81 G12
    Date: 2018–12–17
    URL: http://d.repec.org/n?u=RePEc:san:cdmawp:1803&r=all
  6. By: Victor H. Aguiar; Maria Jose Boccardi; Nail Kashaev; Jeongbin Kim
    Abstract: We study population behavior when choice is hard because considering alternatives is costly. To simplify their choice problem, individuals may pay attention to only a subset of available alternatives. We design and implement a novel online experiment that exogenously varies choice sets and consideration costs for a large sample of individuals. We provide a theoretical and statistical framework that allows us to test random consideration at the population level. Within this framework, we compare competing models of random consideration. We find that the standard random utility model fails to explain the population behavior. However, our results suggest that a model of random consideration with logit attention and heterogeneous preferences provides a good explanation for the population behavior. Finally, we find that the random consideration rule that subjects use is different for different consideration costs while preferences are not. We observe that the higher the consideration cost the further behavior is from the full-consideration benchmark, which supports the hypothesis that hard choices have a substantial negative impact on welfare via limited consideration.
    Date: 2018–12
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1812.09619&r=all
  7. By: Christian Crentsil; Adelina Gschwandtner; Zaki Wahhaj
    Abstract: We study how aversion to risk and ambiguity affects the adoption of new technologies by Ghanaian smallholder aquafarmers. We conduct a set of field experiments designed to elicit farmers's risk and ambiguity preferences and combine it with surveybased information on their technology adoption decisions. We find that aquafarmers who are more risk-averse were quicker to adopt the new technologies: a fast-growing breed of tilapia fish, extruded feed and floating cages. By contrast, ambiguity aversion has no effect on the adoption of the new tilapia breed and extruded feed. Furthermore, it slows down the adoption of floating cages - a technology which entails higher fixed costs than the others - and the effect is diminishing in the number of other adopters in the village. We argue that these differential effects are due to the fact that the technologies are risk-reducing, with potential ambiguity about their payoff distributions at the early stages of adoption. The findings highlight the importance of distinguishing between risk and ambiguity in investigating technology adoption decisions of small-holder farmers in developing countries.
    Keywords: Uncertainty Aversion, Aquafarming, Technology Adoption, Extruded Feed, Floating Cages, Akosombo strain of Tilapia (AST)
    JEL: C93 D81 O33 Q12 Q16
    Date: 2018–12
    URL: http://d.repec.org/n?u=RePEc:ukc:ukcedp:1814&r=all
  8. By: Sujoy Mukerji (Department of Economics and University College - University of Oxford [Oxford]); Han Ozsoylev; Jean-Marc Tallon (PSE - Paris School of Economics)
    Abstract: We consider financial markets with heterogeneously ambiguous assets and heterogeneously ambiguity averse investors. Investors' preferences, a version of the smooth ambiguity model, are a parsimonious extension of the standard mean-variance framework. We consider, in turn, portfolio choice, equilibrium prices, and trade upon arrival of public information, and show, in each case, there are departures from the outcome in standard theory. These departures are of significance as they occur in the direction of empirical regularities that belie the standard theory. * We would like to thank the following for their helpful comments:
    Date: 2018–11–26
    URL: http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01935319&r=all
  9. By: Jacob K. Goeree; Philippos Louis
    Abstract: We introduce a set-valued generalization of Nash equilibrium, called M equilibrium, which is based on ordinal monotonicity - players' choice probabilities are ranked the same as the expected payoffs based on their beliefs - and ordinal consistency - players' beliefs yield the same ranking of expected payoffs as their choices. Using results from semi-algebraic geometry, we prove there exist a finite number of M equilibria, each consisting of a finite number of connected components. Generically, M-equilibria can be "color coded" by their ranks in the sense that choices and beliefs belonging to the same M equilibrium have the same color. We show that colorable M equilibria are behaviorally stable, a concept that strengthens strategic stability. Furthermore, set-valued and parameter-free M equilibrium envelopes various parametric models based on fixed-points, including QRE as well as a new and computationally simpler class of models called {\mu} Equilibrium. We report the results of several experiments designed to contrast M equilibrium predictions with those of existing behavioral game-theory models. A first experiment considers five variations of an asymmetric-matching pennies game that leave the predictions of Nash, various versions of QRE, and level-k unaltered. However, observed choice frequencies differ substantially and significantly across games as do players' beliefs. Moreover, beliefs and choices are heterogeneous and beliefs do not match choices in any of the games. These findings contradict existing behavioral game-theory models but accord well with the unique M equilibrium. Follow up experiments employ 3 by 3 games with a unique pure-strategy Nash equilibrium and multiple M equilibria. The belief and choice data exhibit coordination problems that could not be anticipated through the lens of existing behavioral game-theory models.
    Date: 2018–11
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1811.05138&r=all
  10. By: Babak Mahdavi-Damghani; Konul Mustafayeva; Stephen Roberts; Cristin Buescu
    Abstract: We investigate the problem of dynamic portfolio optimization in continuous-time, finite-horizon setting for a portfolio of two stocks and one risk-free asset. The stocks follow the Cointelation model. The proposed optimization methods are twofold. In what we call an Stochastic Differential Equation approach, we compute the optimal weights using mean-variance criterion and power utility maximization. We show that dynamically switching between these two optimal strategies by introducing a triggering function can further improve the portfolio returns. We contrast this with the machine learning clustering methodology inspired by the band-wise Gaussian mixture model. The first benefit of the machine learning over the Stochastic Differential Equation approach is that we were able to achieve the same results though a simpler channel. The second advantage is a flexibility to regime change.
    Date: 2018–12
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1812.10183&r=all
  11. By: Alain Venditti (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, EDHEC - EDHEC Business School)
    Abstract: We study the existence of endogenous competitive equilibrium cycles under small discounting in a two-sector discrete-time optimal growth model. We provide precise concavity conditions on the indirect utility function leading to the existence of period-two cycles with a critical value for the discount factor that can be arbitrarily close to one. Contrary to the continuous-time case where the existence of periodic-cycles is obtained if the degree of concavity is close to zero, we show that in a discrete-time setting the driving condition does not require a close to zero degree of concavity but a symmetry of the indirect utility function's concavity properties with respect to its two arguments.
    Keywords: two-sector optimal growth model,small discounting,period-two cycles,strong and weak concavity
    Date: 2018–11
    URL: http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01934842&r=all
  12. By: Erhan Bayraktar; Thomas Caye; Ibrahim Ekren
    Abstract: Using ideas from homogenization theory and stability of viscosity solutions, we provide an asymptotic expansion of the value function of a multidimensional utility maximization problem with small non-linear price impact. In our model cross-impacts between assets are allowed. In the limit for small price impact, we determine the asymptotic expansion of the value function around its frictionless version. The leading order correction is characterized by a nonlinear second order PDE related to an ergodic control problem. We illustrate our result on a multivariate geometric Brownian motion price model.
    Date: 2018–11
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1811.06650&r=all
  13. By: Paolo Guasoni; Yu-Jui Huang
    Abstract: This paper solves the problem of optimal dynamic consumption, investment, and healthcare spending with isoelastic utility, when natural mortality grows exponentially to reflect Gompertz' law and investment opportunities are constant. Healthcare slows the natural growth of mortality, indirectly increasing utility from consumption through longer lifetimes. Optimal consumption and healthcare imply an endogenous mortality law that is asymptotically exponential in the old-age limit, with lower growth rate than natural mortality. Healthcare spending steadily increases with age, both in absolute terms and relative to total spending. The optimal stochastic control problem reduces to a nonlinear ordinary differential equation with a unique solution, which has an explicit expression in the old-age limit. The main results are obtained through a novel version of Perron's method.
    Date: 2019–01
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1901.00424&r=all
  14. By: Shenhao Wang; Jinhua Zhao
    Abstract: It is an enduring question how to combine revealed preference (RP) and stated preference (SP) data to analyze travel behavior. This study presents a new approach of using multitask learning deep neural network (MTLDNN) to combine RP and SP data and incorporate the traditional nest logit approach as a special case. Based on a combined RP and SP survey in Singapore to examine the demand for autonomous vehicles (AV), we designed, estimated and compared one hundred MTLDNN architectures with three major findings. First, the traditional nested logit approach of combining RP and SP can be regarded as a special case of MTLDNN and is only one of a large number of possible MTLDNN architectures, and the nested logit approach imposes the proportional parameter constraint under the MTLDNN framework. Second, out of the 100 MTLDNN models tested, the best one has one shared layer and five domain-specific layers with weak regularization, but the nested logit approach with proportional parameter constraint rivals the best model. Third, the proportional parameter constraint works well in the nested logit model, but is too restrictive for deeper architectures. Overall, this study introduces the MTLDNN model to combine RP and SP data, relates the nested logit approach to the hyperparameter space of MTLDNN, and explores hyperparameter training and architecture design for the joint demand analysis.
    Date: 2019–01
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1901.00227&r=all
  15. By: Kyoung Jin Choi; Junkee Jeon; Hyeng Keun Koo
    Abstract: This paper investigates the consumption and risk taking decision of an economic agent with partial irreversibility of consumption decision by formalizing the theory proposed by Duesenberry (1949). The optimal policies exhibit a type of the (s, S) policy: there are two wealth thresholds within which consumption stays constant. Consumption increases or decreases at the thresholds and after the adjustment new thresholds are set. The share of risky investment in the agent's total investment is inversely U-shaped within the (s, S) band, which generates time-varying risk aversion that can fluctuate widely over time. This property can explain puzzles and questions on asset pricing and households' portfolio choices, e.g., why aggregate consumption is so smooth whereas the high equity premium is high and the equity return has high volatility, why the risky share is so low whereas the estimated risk aversion by the micro-level data is small, and whether and when an increase in wealth has an impact on the risky share. Also, the partial irreversibility model can explain both the excess sensitivity and the excess smoothness of consumption.
    Date: 2018–12
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1812.10038&r=all
  16. By: Alon Cohen; Moran Koren; Argyrios Deligkas
    Abstract: In principal-agent models, a principal offers a contract to an agent to perform a certain task. The agent exerts a level of effort that maximizes her utility. The principal is oblivious to the agent's chosen level of effort, and conditions her wage only on possible outcomes. In this work, we consider a model in which the principal is unaware of the agent's utility and action space. She sequentially offers contracts to identical agents, and observes the resulting outcomes. We present an algorithm for learning the optimal contract under mild assumptions. We bound the number of samples needed for the principal obtain a contract that is within $\epsilon$ of her optimal net profit for every $\epsilon>0$.
    Date: 2018–11
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1811.06736&r=all
  17. By: Alem, Yonas; Colmer, Jonathan
    Abstract: Separating the effects of uncertainty from realised events, and identifying the welfare effects of uncertainty, present a number of empirical challenges. Combining individuallevel panel data from rural Ethiopia with high-resolution meteorological data, we introduce a new proxy for income uncertainty - mean-preserving rainfall variability - and estimate that an increase in income uncertainty is associated with reductions in objective consumption and subjective well-being (SWB). Furthermore, 86% of the effect on SWB is attributed to the direct effects of uncertainty, consistent with a model of optimal expectations (Brunnermeier and Parker, 2005). In addition, we find that farmers in more uncertain environments are more resilient to realised rainfall shocks, consistent with a trade-off between optimism about the future and risk-management investments today. These findings suggest that the gains from further consumption smoothing are likely greater than estimates based solely on realised consumption fluctuations.
    Keywords: income uncertainty,consumption smoothing,subjective well-being,rainfall variability
    JEL: O13 Q12 Q56
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:zbw:rwirep:780&r=all
  18. By: Tho V. Le; Junyi Zhang; Makoto Chikaraishi; Akimasa Fujiwara
    Abstract: To analyze the influence of introducing the High-Speed Railway (HSR) system on business and non-business travel behavior, this study develops an integrated inter-city travel demand model to represent trip generations, destination choice, and travel mode choice behavior. The accessibility calculated from the RP/SP (Revealed Preference/Stated Preference) combined nested logit model of destination and mode choices is used as an explanatory variable in the trip frequency models. One of the important findings is that additional travel would be induced by introducing HSR. Our simulation analyses also reveal that HSR and conventional airlines will be the main modes for middle distances and long distances, respectively. The development of zones may highly influence the destination choices for business purposes, while prices of HSR and Low-Cost Carriers affect choices for non-business purposes. Finally, the research reveals that people on non-business trips are more sensitive to changes in travel time, travel cost and regional attributes than people on business trips.
    Date: 2018–12
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1812.04184&r=all
  19. By: Kent Daniel; Lorenzo Garlappi; Kairong Xiao
    Abstract: We study the impact of monetary policy on investors' portfolio choices and asset prices. Using data on individual portfolio holdings and on mutual fund flows, we find that a low-interest-rate monetary policy increases investors' demand for high-dividend stocks and drives up their prices. The increase in demand is more pronounced among investors who fund consumption using dividend income. To explain these empirical findings, we develop an asset pricing model in which investors have quasi-hyperbolic time preferences and use dividend income as a commitment device to curb their tendency to over-consume. When accommodative monetary policy lowers interest rates, it reduces the income stream from bonds and induces investors who want to keep a desired level of consumption to ``reach for income'' by tilting their portfolio toward high-dividend stocks. Our finding suggests that low-interest-rate monetary policy may influence the risk premium of income-generating assets, lead to under-diversification of investors' portfolios, and cause redistributive effects across firms that differ in their dividend policy.
    JEL: E50 G11
    Date: 2018–12
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:25344&r=all
  20. By: Fujun Hou
    Abstract: In group decision making, the preference map and Cook-Seiford vector are two concepts as ways of describing ties-permitted ordinal rankings. This paper shows that they are equivalent for representing ties-permitted ordinal rankings. Transformation formulas from one to the other are given and the inherent consistency of the mutual conversion is discussed. The proposed methods are illustrated by some examples. Some possible future applications of the proposed formulas are also pointed out.
    Date: 2018–12
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1812.03566&r=all
  21. By: Chiaki Hara (Institute of Economic Research, Kyoto University)
    Abstract: In the Capital Asset Pricing Model, we consider how introducing new assets will affect the prices of the existing ones. We prove that introducing new assets into financial markets increases the relative price of the market portfolio with respect to the risk-free bond if the elasticity of the marginal rates of substitution of the mean for standard deviation with respect to the latter is greater than one for every consumer; the relative price of the market portfolio decreases if the elasticity is less than one; and the relative price is left unchanged if the elasticity is equal to one.
    Keywords: Capital Asset Pricing Model, generalequilibriumtheory, incomplete asset markets, nancialinnovation, expectedutility
    JEL: D51 D52 G11 G12 G13
    Date: 2018–10
    URL: http://d.repec.org/n?u=RePEc:kyo:wpaper:1005&r=all
  22. By: Michael King (Department of Economics, Trinity College Dublin); Anuj Singh (Department of Economics, Trinity College Dublin)
    Abstract: Financial products with a cashback feature typically cost consumers more in the long run, but their popularity is rising in the mortgage and credit markets. Using a nationally representative online sample, we find that consumers who are younger, less educated and suffer from present bias are more likely to choose costly cash back mortgages. Through a series of experiments, we provide strong evidence that advanced disclosure improves financial decision making of customers and that negative nudges, or advertising, encourages prospective buyers into more costly mortgages. We also find evidence that consumers who demonstrate limited attention bias choose more expensive cashback mortgages that are financially equivalent at the point of drawdown.
    Keywords: Household Finance, Consumer Protection, Mortgages, Behavioural Biases, Marketing Nudges, Choice Experiment
    JEL: G21 G28 M3
    Date: 2018–11
    URL: http://d.repec.org/n?u=RePEc:tcd:tcduee:tep1118&r=all
  23. By: Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Xavier Venel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: There exists a wide gap between the predictions of strategic models of network formation and empirical observations of the characteristics of socio-economic networks. Empirical observations underline a complex structure characterized by fat-tailed degree distribution, short average distance, large clustering coefficient and positive assortativity. Game theoretic models offer a detailed representation of individuals' incentives but they predict the emergence of much simpler structures than these observed empirically. Random network formation processes, such as preferential attachment, provide a much better fit to empirical observations but generally lack micro-foundations. in order to bridge this gap, we propose to model network formation as extensive games and investigate under which conditions equilibria of these games are observationally equivalent with random network formation process. In particular, we introduce a class of games in which players compete with their predecessors and their successors for the utility induced by the links they form with another node in the network. Such sequential competition games can represent a number of strategic economic interactions such as oligopolistic competition in supply networks or diffusion of influence in opinion networks. we show that the focal equilibrium that emerge in this setting is one where players use probability distributions with full support and target the whole network with probabilities inversely proportional to the utility of each node. Notably, when the utility of a node is inversely proportional to its degree, equilibrium play induces a preferential attachment process.
    Abstract: Les modèles stratégiques de formation de réseaux existants peinent à expliquer un certain nombre de propriétés empiriques. Pour combler ce manque, nous proposons de modéliser la formation de réseau comme un jeu extensif et caractérisons les conditions sous lesquelles les équilibres de ces jeux sont consistants avec des dynamiques aléatoires de formation de réseau dont les bonnes propriétés empiriques sont connues. En particulier, nous introduisons une classe de jeux où les joueurs sont en compétition avec leurs successeurs et à leurs prédécesseurs pour les bénéfices induits par des relations avec d'autres noeuds du réseau. Nous montrons que la stratégie d'équilibre focale dans ce jeu est de se lier aux nœuds existants du réseau avec une probabilité inversement proportionnelle à l'utilité qu'ils génèrent. Notamment, lorsque l'utilité générée par un nœud est inversement proportionnelle à son degré, la stratégie d'équilibre coïncide avec le processus "d'attachement préférentiel" de Barabasi-Albert.
    Keywords: Socio-economic networks,endogenous networks formation,game theory,Réseaux socio-économiques,formation endogène des réseaux,théorie des jeux,attachement préférentiel
    Date: 2018–10
    URL: http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01960682&r=all
  24. By: Jørgen-Vitting Andersen (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Philippe De Peretti (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We introduce a new methodology that enables the detection of onset of convergence towards Nash equilibria, in simple repeated-games with infinite large strategy spaces. The method works by constraining on a special and finite subset of strategies. We illustrate how the method can predict (in special time periods) with a high success rate the action of participants in a series of experiments.
    Keywords: multi-period games,infinite strategy space,decoupling,bounded rationality,agent-based modeling
    Date: 2018–07
    URL: http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01960900&r=all
  25. By: Daniel Muller
    Abstract: In recent years, artificial intelligence (AI) decision-making and autonomous systems became an integrated part of the economy, industry, and society. The evolving economy of the human-AI ecosystem raising concerns regarding the risks and values inherited in AI systems. This paper investigates the dynamics of creation and exchange of values and points out gaps in perception of cost-value, knowledge, space and time dimensions. It shows aspects of value bias in human perception of achievements and costs that encoded in AI systems. It also proposes rethinking hard goals definitions and cost-optimal problem-solving principles in the lens of effectiveness and efficiency in the development of trusted machines. The paper suggests a value-driven with cost awareness strategy and principles for problem-solving and planning of effective research progress to address real-world problems that involve diverse forms of achievements, investments, and survival scenarios.
    Date: 2018–11
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1811.06606&r=all
  26. By: Giovannetti, Emanuele; Hamoudia, Mohsen
    Abstract: The mobile provision of social networking services including integrated voice, pictures and music over IP lead to the success of companies such as Snapchat, Skype WhatsApp, Twitter or Spotify.. Understanding the rapid international diffusion of these companies' mobile integrated services, resulting from the interplay of consumers' needs and companies' appropriate marketing mixes is of clear managerial relevance, due to the profits and market value implications of the number of customers reached, while being of great research interest, given the complex role played by the different drivers affecting users' adoption decisions for these mobile social networking services. Given the interactive nature of social networking and the ensuing relevance of users' generated content, a member's utility from joining a social networking platform increases with the number of users, so that higher penetration levels increase the utility of new adopters and the expected utility of the potential ones, through direct network externalities (Katz & Shapiro, 1985, 1986). As technological change is constantly transforming and increasing the capabilities of smartphones, allowing mobile Internet access for sharing and transmitting videos, pictures music and voice, and because of the increasingly fast mobile access networks, Mobile Social Networking adoption choices are also affected by indirect network externalities due to the diffusion of smartphones, the complementary commodities required for the adoption of MSN services identified as a key driver for the adoption of mobile applications. Other likely predictors for the adoption decisions are likely to be linked to the effective prices of using mobile phones, a crucial driver for adoption of multimedia mobile services and the time spent on using them.
    Keywords: Mobile Social Networking,Diffusion,Early & Late Adopters,Indirect Network Externalities,Penetration Pricing,Interaction Models
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:zbw:itsb18:190422&r=all
  27. By: Christine L. Exley; Judd B. Kessler
    Abstract: We show that individuals narrowly bracket their equity concerns. Across four experiments including 1,600 subjects, individuals equalize components of payoffs rather than overall payoffs. When earnings are comprised of "small tokens" worth 1 cent and "large tokens" worth 2 cents, subjects frequently equalize the distribution of small (or large) tokens rather than equalizing total earnings. When payoffs are comprised of time and money, subjects similarly equalize the distribution of time (or money) rather than total payoffs. In addition, subjects are more likely to equalize time than money. These findings can help explain a variety of behavioral phenomena including the structure of social insurance programs, patterns of public good provision, and why transactions that turn money into time are often deemed repugnant.
    JEL: C91 D63 H2
    Date: 2018–12
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:25326&r=all
  28. By: George-Marios Angeletos; Karthik A. Sastry
    Abstract: Should a policymaker offer forward guidance by committing to a path for the policy instrument or a target for an equilibrium outcome? We study how the optimal approach depends on plausible bounds on agents’ depth of knowledge and rationality. Agents make mistakes in predicting, or reasoning about, the behavior of others and the GE effects of policy. The optimal policy minimizes the bite of such mistakes on implementability and welfare. This goal is achieved by fixing and communicating an outcome target if and only if the GE feedback is strong enough. Our results suggest that central banks should stop talking about interest rates and start talking about unemployment when faced with a steep Keynesian cross or a prolonged liquidity trap.
    JEL: D82 D84 E52 E58
    Date: 2018–12
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:25404&r=all
  29. By: Jarko Fidrmuc; Christa Hainz; Werner Hölzl (WIFO)
    Abstract: We show that firms' credit market experience determines their perception of aggregate bank lending policy using panel data from the Austrian Business Survey between 2011 and 2016. Loan rejections have a strongly negative and persistent effect on perceptions. Interestingly, firms that receive a loan at worse than anticipated conditions show a similarly negative effect. Firms that do not need a loan tend to perceive lending policy as neutral and revise their perceptions less often. Our findings are in line with theories on sticky information, rational inattention and pessimism bias and suggest considering experience for the aggregation of perceptions.
    Keywords: Perception of lending policy, formation of perceptions, sticky information, rational inattention, pessimism bias, behavioral macroeconomics
    Date: 2018–12–20
    URL: http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2018:i:574&r=all

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