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on Utility Models and Prospect Theory |
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Issue of 2019‒05‒13
24 papers chosen by |
| By: | Olijslager, Stan; van Wijnbergen, Sweder |
| Abstract: | We focus on the effect of preference specifications on the current day valuation of future outcomes. Specifically, we analyze the effect of risk aversion, ambiguity aversion and the elasticity of intertemporal substitution on the willingness to pay to avoid climate change risk. The first part of the paper analyzes a general disaster (jump) risk model with a constant arrival rate of disasters. This provides useful intuition in how preferences influence valuation of long-term risk. The second part of the paper extends this model with a climate model and a temperature dependent arrival rate. Since the model yields closed form solutions up to solving an integral, our model does not suffer from the curse of dimensionality of numerical IAMs with several state variables. Introducing Epstein-Zin preferences with an elasticity of substitution higher than one and ambiguity aversion leads to much larger estimates of the social cost of carbon than obtained under power utility. The dominant parameters are the risk aversion coefficient and the elasticity of intertemporal substitution. Ambiguity aversion is of second order importance. |
| Keywords: | ambiguity aversion; climate change; Epstein-Zin Preferences; Social cost of carbon; Stochastic Differential Utility |
| JEL: | G12 G13 Q51 Q54 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13708&r=all |
| By: | Henri Loubergé (UNIGE - Université de Genève); Yannick Malevergne (PRISM-Sorbonne - PRISM - Pôle de recherche interdisciplinaire en sciences du management - UP1 - Université Panthéon-Sorbonne); Béatrice Rey (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We start by pointing out a simple property of risk apportionment with additive risks in the general stochastic dominance context defined by Eeckhoudt et al. (2009b). Quite generally, an observed preference for risk apportionment with additive risks in a specific risk environment is preserved when the decision-maker is confronted to other risk situations, so long as the total order of stochastic dominance relationships among pairs of risks remains the same. Our objective is to check whether this simple property also holds for multiplicative risk environments. We show that this is not the case, in general, but that the property holds and more strongly for the case of CRRA utility functions. This is due to a particular feature of CRRA functions that we unveil. |
| Keywords: | Preserved preference ranking,Multiplicative risks,Constant relative risk aversion,Additive risks,Risk apportionment |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02100855&r=all |
| By: | Abhinash Bora (Department of Economics, Ashoka University); Christopher Kops (Department of Economics, Ashoka University) |
| Abstract: | We address the oft-repeated criticism that the demands which the rational choice approach makes on the knowledge and cognition of a decision maker (DM) are way beyond the capabilities of typical human intelligence. Our key finding is that it may be possible to arrive at this ideal of rationality by means of cognitively less demanding, heuristic-based ecological reasoning that draws on information about others' choices in the DM's environment. Formally, we propose a choice procedure under which, in any choice problem, the DM, first, uses this information to shortlist a set of alternatives. The DM does this shortlisting by a mental process of categorization whereby she draws similarities with certain societal members-the ingroup—and distinctions from others-the outgroup-and considers those alternatives that are similar (dissimilar) to ingroup (outgroup) members' choices. Then, she chooses from this shortlisted set by applying her preferences, which may be incomplete owing to limitations of knowledge. We show that if a certain homophily condition connecting the DM's preferences with her ingroup-outgroup categorization holds, then the procedure never leads the DM to making bad choices. If, in addition, a certain shortlisting consistency condition holds vis-a-vis non-comparable alternatives under the DM's preferences, then the procedure results in rational choices. |
| Keywords: | Rational choice, ecological rationality, ingroup-outgroup categorization, fast and frugal heuristics, homophily |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:ash:wpaper:1011&r=all |
| By: | Franz Dietrich (PSE - Paris School of Economics, CNRS - Centre National de la Recherche Scientifique, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper proposes a simple unified framework of choice under changing awareness, addressing both outcome awareness and (nature) state awareness, and both how fine and how exhaustive the awareness is. Six axioms characterize an (essentially unique) expected-utility rationalization of preferences, in which utilities and probabilities are revised according to three revision rules when awareness changes: (R1) utilities of unaffected outcomes are transformed affinely; (R2) probabilities of unaffected events are transformed proportionally; (R3) enough probabilities ‘objectively' never change (they represent revealed objective risk). Savage's Theorem is a special case of the theorem, namely the special case of fixed awareness, in which our axioms reduce to Savage's axioms while R1 and R2 hold trivially and R3 reduces to Savage's requirement of atomless probabilities. Rule R2 parallels Karni and Viero's (2013) ‘reverse Bayesianism' and Ahn and Ergin's (2010) ‘partition-dependence'. The theorem draws mathematically on Kopylov (2007), Niiniluoto (1972) and Wakker (1981). |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01743898&r=all |
| By: | Senda Ounaies (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Jean-Marc Bonnisseau (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Souhail Chebbi (LEGI - Laboratoire d'Économie et de Gestion Industrielle [Tunis] - Ecole Polytechnique de Tunisie) |
| Abstract: | In this paper, we consider a production economy with an unbounded attainable set where the consumers may have non-complete non-transitive preferences. To get the existence of an equilibrium, we provide an asymptotic property on preferences for the attainable consumptions and we use a combination of the nonlinear optimization and fixed point theorems on truncated economies together with an asymptotic argument. We show that this condition holds true if the set of attainable allocations is compact or, when the preferences are representable by utility functions, if the set of attainable individually rational utility levels is compact. This assumption generalizes the CPP condition of [N. Allouch, An equilibrium existence result with short selling, J. Math. Econom. 37 2002, 2, 81–94] and covers the example of [F. H. Page, Jr., M. H. Wooders and P. K. Monteiro, Inconsequential arbitrage, J. Math. Econom. 34 2000, 4, 439–469] when the attainable utility levels set is not compact. So we extend the previous existence results with non-compact attainable sets in two ways by adding a production sector and considering general preferences. |
| Keywords: | nonlinear optimization,quasi-equilibrium,non-compact attainable allocations,Production economy |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01859163&r=all |
| By: | Christian Diego Alcocer; Julián Ortegón; Alejandro Roa; Julián Ortegón; Alejandro Roa |
| Abstract: | Abstract The relevance of present consumption bias on personal finance has been confirmed in several studies. We propose a finite horizon model that is readily generalized to include risk and uncertainty on future income within a hyperbolic discounting framework. Our functional assumptions allow us to find a closed solution so we can provide a detailed analysis of behavior under varying risk scenarios and availability of commitment devices. We develop a measure of the cost of intertemporal inconsistencies by analyzing how an agent’s utility is greater when they tie their hands than when they are free to re-evaluate and change their consumption schedule. Much like a patient going through cognitive behavioral therapy (CBT) to quit smoking who is advised throw away his cigarette packs to avoid temptation. This lack-of-self-control cost only depends on the measure of the present bias and on the discount factor. We conclude by discussing consistent estimation methods of these biases and the effects of our results on agent-based simulations, industrial organization, experimental economics, labor markets and public sector mechanism design. Resumen: La relevancia del sesgo conductual del consumo presente en las finanzas personales ha sido verificada empíricamente en numerosos estudios. Proponemos un modelo de horizonte finito que es generalizable para incluir riesgo e incertidumbre sobre ingresos futuros en un marco de descuento hiperbólico. Nuestros supuestos funcionales nos permiten encontrar una solución cerrada por lo que podemos incluir un análisis detallado del comportamiento bajo diferentes escenarios de riesgo y de acceso a mecanismos de autocontrol. Desarrollamos una medida sobre el costo de las inconsistencias intertemporales al estudiar cómo la utilidad de los agentes es mayor cuando se atan las manos que cuando son libres de reevaluar y modificar sus sendas de consumo. Esto es similar a una terapia cognitivo-conductual (TCC) para dejar de fumar en la que se aconseja a un paciente tirar sus cajetillas de cigarros para eliminar tentaciones. Este costo por la falta de autocontrol solo depende de la magnitud del sesgo y del factor de descuento. Concluimos con una discusión sobre la estimación consistente de estos sesgos y sobre los efectos de nuestros resultados en diseños de simulaciones basadas en agentes, organización industrial, economía experimental, mercado de trabajo y diseño de mecanismos del sector público. |
| Keywords: | Descuento hiperbólico, economía experimental y conductual, finanzas personales, incertidumbre, racionalidad restringida, sesgo por el presente |
| JEL: | C73 D14 D81 G02 |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:col:000416:017265&r=all |
| By: | Franz Dietrich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Brian Jabarian (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) |
| Abstract: | How should we evaluate options when we are uncertain about the correct standard of evaluation, for instance due to conflicting normative intuitions? Such ‘normative' uncertainty differs from ordinary ‘empirical' uncertainty about an unknown state, and raises new challenges for decision theory and ethics. The most widely discussed proposal is to form the expected value of options, relative to correctness probabilities of competing valuations. We show that the expected-value theory is just one of four natural expectation-based theories. These theories differ in the attitudes to normative risk and to empirical risk. The ordinary expected-value theory imposes neutrality to normative risk, whereas its attitude to empirical risk is impartial, i.e., determined by the risk attitudes of the competing valuations deemed possible. The three other theories are, respectively, neutral to both types of risk; impartial to both types of risk; or neutral to empirical but impartial to normative risk. We conditionally defend the theory which is impartial to all risk - the impartial value theory - on the grounds that it respects risk-attitudinal beliefs rather than imposing an ad-hoc-risk attitude. Meanwhile, our analysis shows how one can address empirical and normative uncertainty within a unified formal framework, and rigorously define risk attitudes of theories. |
| Abstract: | Comment devons-nous évaluer des options de choix lorsque nous ne savons pas quelle méthode d'évaluation est correcte, par exemple à cause d'intuitions normatives concurrentes ? Ce type d'incertitude, nommée « incertitude normative », diffère de l'incertitude standard portant sur les états empiriques du monde, nommée « incertitude empirique ». L'incertitude normative constitue un nouveau challenge pour les sciences économiques et l'éthique contemporaine. La proposition la plus discutée dans le débat est de former la valeur normative espérée des options relativement aux croyances normatives de l'agent. Nous montrons que la théorie de la valeur normative espérée n'est qu'une des quatre formes de théories basées sur l'espérance. Ces théories diffèrent dans leurs attitudes aux risques normatifs et empiriques. La théorie de la valeur normative espérée impose une attitude neutre face au risque normatif, tandis que son attitude face au risque empirique est impartiale, c'est-à-dire seulement déterminée par les attitudes au risque des différentes méthodes d'évaluation jugées possibles par l'agent. Les trois autres théories sont respectivement : neutre face aux deux types de risque ; impartiale face aux deux types de risque ; neutre face au risque empirique mais impartiale face au risque normatif. Nous défendons la théorie qui est impartiale face aux deux types de risque, la théorie impartiale de la valeur, sur la base que cette théorie respecte entièrement les croyances normatives de l'agent concernant la « bonne » attitude face au risque plutôt que d'imposer de manière ad hoc une attitude particulière face au risque. Notre article montre comment nous pouvons traiter à travers un seul cadre formel unifié l'incertitude empirique et l'incertitude normative et définir de manière rigoureuse les attitudes face au risque de théories évaluatives. |
| Keywords: | empirical uncertainty,normative uncertainty,risk attitude,expected value,impartial value,incertitude empirique,incertitude normative,attitude face au risque,valeur normative espérée,valeur impartiale |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01903642&r=all |
| By: | Christopher P. Chambers; Federico Echenique |
| Abstract: | We introduce and study the property of orthogonal independence, a restricted additivity axiom applying when alternatives are orthogonal. The axiom requires that the preference for one marginal change over another should be preferred after each marginal change has been shifted in a direction that is orthogonal to both. We show that continuous preferences satisfy orthogonal independence if and only if they are spherical: their indifference curves are spheres with the same center, with preference being "monotone" moving away from the center. Spherical preferences include linear preferences as a special (limiting) case. We discuss different applications to economic and political environments. Our result delivers Euclidean preferences in models of spatial voting, quadratic welfare aggregation in social choice, and expected utility in models of choice under uncertainty. As an extension, we consider an endogenous notion of orthogonality. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1905.02917&r=all |
| By: | Lionel de Boisdeffre (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour) |
| Abstract: | We consider a pure exchange economy, where agents, typically asymmetrically informed, exchange securities, on financial markets, and commodities, on spot markets. Consumers have private characteristics, anticipations and beliefs, and no model to forecast prices. Rational expectation and bounded rationality assumptions are dropped. We show that agents face an incompressible uncertainty, represented by a so-calles "minimum uncertainty set". This uncertainty typically adds to the exogenous one, on the state of nature, an ‘endogenous uncertainty' over future spot prices. At equilibrium, all agents expect the ‘true' price on every spot market as a possible outcome, and elect optimal strategies, ex ante, which clear on all markets ex post. We show this sequential equilibrium exists whenever agents' prior anticipations embed the minimum uncertainty set. This outcome differs from the standard generic existence results of Hart (1975), Radner (1979), or Duffie-Shaffer (1985), among others based on the rational expectations of prices. |
| Abstract: | L'on considère une économie d'échange pur, où des agents, asymétriquement informés, échangent des biens de consommation, sur des marchés spots, et des actifs financiers, sur des marchés incomplets. Leurs caractéristiques, croyances et anticipations sont privées. L'hypothèse d'anticipations rationnelles, même limitées, est abandonnée. Nous montrons que les agents sont alors confrontés à une incertitude incompressible sur les prix futurs sur chaque marché spot, représentée par un ensemble dit "d'incertitude minimale". Celle-ci réunit l'incertitude « exogène » sur l'état aléatoire de la nature et l'incertitude « endogène » sur les prix spots, qui dépendent des anticipations privées. A l'équilibre, le vrai prix dans chaque état réalisable est anticipé comme possible par chaque agent, lequel optimise sa consommation, et l'équilibre est assuré sur tous les marchés ex post. Notre principal théorème montre que cet équilibre existe si l'ensemble d'anticipation de chaque agent inclut l'ensemble minimal d'incertitude. Ce résultat diffère de ceux des modèles classiques de Radner (1979), Hart (1975) ou Duffie-Schaffer (1985), fondés sur l'anticipation rationnelle des prix, où l'existence n'est que générique. |
| Keywords: | sequential equilibrium,temporary equilibrium,perfect foresight,rational expectations,financial markets,asymmetric information,marchés financiers,anticipations rationnelles,équilibre séquentiel,équilibre temporaire,anticipations parfaites,existence,asymétrie d'information,arbitrage |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01903510&r=all |
| By: | Lionel de Boisdeffre (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour) |
| Abstract: | The paper demonstrates the existence of sequential equilibria in a pure exchange economy, where asymmetrically informed agents exchange consumption goods and securities of all kinds, on incomplete markets. Standard models rely on Radner's (1972, 1979) rational expectation assumptions, along which agents know the maps between the information signals, the states of nature and the equilibrium prices. As shown by Hart (1975), equilibrium may then fail to exist, even when agents have symmetric information and smooth preferences. In that setting, Duffie-Shafer (1985) shows, from differential topology arguments, that interior equilibria exist generically. The current paper proceeds differently. It drops rational expectations to allow for an infinitesimal uncertainty over future spot prices. This device permits to circumvent Hart's 1975 problem, without using differential topology. Then, the paper shows that a generic condition on payoffs and forecasts guarantees the existence of equilibria. It is consistent with non-transitive preferences, non-interior consumptions, asymmetric information and normalized spot prices at equilibrium. It also serves to prove existence in a more general model, which drops Radner's rational expectations. |
| Abstract: | Cet article démontre l'existence d'équilibres séquentiels dans une économie d'échange pur, où des agents asymétriquement informés échangent des biens de consommation et des actifs financiers de toutes sortes sur des marchés incomplets. Les modèles standards se fondent sur les hypothèses d'anticipations rationnelles de Radner (1972, 1979), selon lesquelles les agents connaissent la fonction associant les signaux d'information privés des agents, les états de la nature et les prix d'équilibre sur chaque marché spot. Comme le montre Hart (1975), l'équilibre peut ne pas exister sous ces hypothèses, même lorsque tous les agents ont des préférences ordonnées et lisses et la même information. Dans ce cadre, Duffie-Safer (1985) démontre, à partir de la topologie différentielle, l'existence générique d'équilibres intérieurs. Le présent papier procède différemment. Il abandonne les anticipations rationnelles pour permettre une incertitude infinitésimale sur les prix spots de demain. Cela permet de contourner le problème d'existence de Hart (1975), sans recourir à la topologie différentielle. Le papier démontre, ensuite, qu'une condition sur les rendements des actifs et les anticipations des agents, réalisée génériquement, restaure l'existence de l'équilibre sur tous les marchés. Ce résultat est compatible avec des préférences non transitives, des consommations au bord, une information asymétrique et des prix spots normalisés à l'équilibre. Il est utilisé, dans un autre papier, pour prouver l'existence d'équilibres séquentiels dans un modèle plus général d'anticipation des prix, affranchi des hypothèses d'anticipations rationnelles de Radner. |
| Keywords: | sequential equilibrium,perfect foresight,existence of equilibrium,rational expectations,financial markets,asymmetric information,marchés financiers,anticipations rationnelles,équilibre séquentiel,anticipations parfaites,existence de l'équilibre,asymétrie d'information,arbitrage |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01903586&r=all |
| 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:journl:halshs-01960682&r=all |
| By: | Franz Dietrich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Antonios Staras (UEA - University of East Anglia [Norwich]); Robert Sugden (UEA - University of East Anglia [Norwich]) |
| Abstract: | John Broome has developed an account of rationality and reasoning which gives philosophical foundations for choice theory and the psychology of rational agents. We formalize his account into a model that differs from ordinary choice-theoretic models through focusing on psychology and the reasoning process. Within that model, we ask Broome's central question of whether reasoning can make us more rational: whether it allows us to acquire transitive preferences, consistent beliefs, non-akratic intentions, and so on. We identify three structural types of rationality requirements: consistency requirements, completeness requirements, and closedness requirements. Many standard rationality requirements fall under this typology. Based on three theorems, we argue that reasoning is successful in achieving closedness requirements, but not in achieving consistency or completeness requirements. We assess how far our negative results reveal gaps in Broone's theory, or deficiencies in choice theory and behavioural economics. |
| Abstract: | John Broome a développé une théorie de la rationalité et du raisonnement qui donne des fondements philosophiques au choix rationnel et à la psychologie d'acteurs rationnels. Nous formalisons cette théorie en définissant un cadre qui diffère de modèles classiques du choix rationnel, en mettant au centre la psychologie et le raisonnement. A travers notre modèle, nous reposons la question centrale de Broome si le raisonnement nous permet d'augmenter notre rationalité : si le raisonnement nous fait acquérir des préférences transitives, des croyances cohérentes, des intentions conformes à nos buts (" non akratiques ") etc. Nous identifions trois types de conditions de rationalité : des conditions de cohérence, des conditions de complétude et des conditions de clôture. Un grand nombre de conditions de rationalité classiques tombent sous cette taxonomie. En nous appuyant sur trois théorèmes, nous montrons que le raisonnement est utile pour arriver à satisfaire des conditions de clôture, mais pas des conditions de cohérence ou de complétude. Nous évaluons enfin dans quelle mesure nos résultats négatifs révèlent des problèmes dans la théorie Broomeienne ou posent des problèmes à la théorie du choix rationnel et l'économie comportementale. |
| Keywords: | rationality,reasoning,beliefs,consistency,completeness,deductive closure,rationalité,raisonnement,intentions,croyances,préférences,cohérence,complétude,clôture déductive |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01904091&r=all |
| By: | Elias Bouacida (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | I introduce a general method for identifying choice correspondences experimentally, i.e., the sets of best alternatives of decision makers in each choice sets. Most of the revealed preference literature assumes that decision makers can choose sets. In contrast, most experiments force the choice of a single alternative in each choice set. In this paper, I allow decision makers to choose several alternatives, provide a small incentive for each alternative chosen, and then randomly select one for payment. I derive the conditions under which the method at least partially identifies the choice correspondence, by obtaining supersets and subsets for each choice set. I illustrate the method with an experiment, in which subjects chose between four paid tasks. I can retrieve the full choice correspondence for 26% of subjects and bind it for another 46%. Subjects chose sets of size 2 or larger 60% of the time, whereas only 3% of them always chose singletons. I then show that 46% of all observed choices can be rationalized by complete, reflexive and transitive preferences in my experiment, i.e., satisfy the Weak Axiom of Revealed Preferences – WARP hereafter. Weakening the classical model, incomplete preferences or just-noticeable difference preferences do not rationalize more choice correspondences. Going beyond WARP, however, I show that complete, reflexive and transitive preferences with menu-dependent choices rationalize 93% of observed choices. Having elicited choice correspondences allows me to conclude that indifference is widespread in the experiment. These results pave the way for exploring various behavioral models with a unified method. |
| Keywords: | aggregation of preferences,just noticeable preferences,choice correspondences,revealed preferences,welfare,indifference,WARP |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01998001&r=all |
| By: | Ben-Gad, M.; Ben Haim, Y.; Peled, D. |
| Abstract: | We apply the information gap approach to resource allocation under Knightian (non-probabilistic) uncertainty in order to study how best to allocate public resources betweencompeting defense measures. We demonstrate that when determining the level and composi-tion of defense spending in an environment of extreme uncertaintyvis-a-visthe likelihood ofarmed conflict and its outcomes, robust-satisficing expected utility will usually be preferableto expected utility maximisation. Moreover, our analysis suggests that in environments withunreliable information about threats to national security and their consequences, a desirefor robustness to model misspecification in the decision making process will imply greaterexpenditure on certain types of defense measures at the expense of others. Our results alsoprovide a positivist explanation of how governments seem to allocate security expendituresin practice. |
| Keywords: | Defense; Knightian Uncertainty; Robustness; Info-gap |
| Date: | 2019–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:cty:dpaper:19/06&r=all |
| By: | Kotchikpa Gabriel Lawin; Lota Dabio Tamini |
| Abstract: | The literature considers crop diversification to be a risk management strategy at the farm level. In this article, we combine experimental data on risk aversion with survey data to identify the extent to which risk aversion affects crop diversification decisions. We conduct experiments to measure the risk aversion of smallholder farmers in Burkina Faso and a field survey to gather data on various socio-economic variables. To measure crop diversification, we use three indices of spatial diversity in crop species adapted from the ecological economics literature, i.e., the weighted count index, the weighted Herfindahl index measure of crop concentration and the weighted Shannon index of evenness. An Ordinary Least square (OLS) model is used to estimate the impact of risk aversion on crop diversification when the weighted count index and the weighted Herfindahl index are used as the dependent variable, whereas a Tobit model is used for the weighted Shannon index. Our results show that risk aversion has a negative and significant effect on crop diversification. Risk-averse producers focus more on the production of traditional, less risky and low market value crops. Other variables also affect crop diversification. In particular, education level, distance to market, farm area and land fragmentation are associated with greater crop diversification. |
| Keywords: | Risk aversion,diversity index,crop diversification,smallholder farmers,Burkina Faso, |
| JEL: | C93 D13 G11 Q12 Q57 |
| Date: | 2019–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2019s-07&r=all |
| By: | Ilai Bistritz; Nasimeh Heydaribeni; Achilleas Anastasopoulos |
| Abstract: | We consider an environment where a finite number of players need to decide whether to buy a certain product (or adopt a trend) or not. The product is either good or bad, but its true value is not known to the players. Instead, each player has her own private information on the quality of the product. Each player can observe the previous actions of other players and estimate the quality of the product. A player can only buy the product once. In contrast to the existing literature on informational cascades, in this work players get more than one opportunity to act. In each turn, a player is chosen uniformly at random from all players and can decide to buy or not to buy. His utility is the total expected discounted reward, and thus myopic strategies may not constitute equilibria. We provide a characterization of structured perfect Bayesian equilibria (sPBE) with forward-looking strategies through a fixed-point equation of dimensionality that grows only quadratically with the number of players. In particular, a sufficient state for players' strategies at each time instance is a pair of two integers, the first corresponding to the estimated quality of the good and the second indicating the number of players that cannot offer additional information about the good to the rest of the players. We show existence of such equilibria and characterize equilibria with threshold strategies w.r.t. the two aforementioned integers. Based on this characterization we study informational cascades and show that they happen with high probability for a large number of players. Furthermore, only a small portion of the total information in the system is revealed before a cascade occurs. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1905.01327&r=all |
| By: | Fabrizio Ferriani (Bank of Italy); Filippo Natoli (Bank of Italy); Giovanni Veronese (Bank of Italy); Federica Zeni (Bank of Italy) |
| Abstract: | The boom in the production of shale oil in the United States has triggered a structural transformation of the oil market. We show, both theoretically and empirically, that this process has significant consequences for oil risk premium. We construct a model based on shale producers interacting with financial speculators in the futures market. Compared to conventional oil, shale oil technology is more flexible, but producers have higher risk aversion and face additional costs due to their reliance on external finance. Our model helps to explain the observed pattern of aggregate hedging by US oil companies in the last decade. The empirical analysis shows that the hedging pressure of shale producers has become more important than that of conventional producers in explaining the oil futures risk premium. |
| Keywords: | shale oil, futures, risk premium, hedging, speculation, limits to arbitrage. |
| JEL: | G00 G13 G32 Q43 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1215_19&r=all |
| By: | Armah, Ralph; Schwab, Ben |
| Keywords: | Risk and Uncertainty |
| Date: | 2019–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:ags:scc019:288086&r=all |
| By: | Felix Chan; Ágoston Reguly; László Mátyás |
| Abstract: | This paper deals with econometric models where some (or all) explanatory variables (or covariates) are observed as discretized ordered choices. Such variables are in theory continuous, but in this form are not observed at all, their distribution is unknown, and instead only a set of discrete choices are observed. We explore how such variables influence inference, more precisely, we show that this leads to a very special form of measurement error, and consequently to endogeneity bias. We then propose appropriate sub-sampling and instrumental variables (IV) estimation methods to deal with the problem. |
| Date: | 2019–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:ceu:econwp:2019_2&r=all |
| By: | Fix, Blair; Nitzan, Jonathan; Bichler, Shimshon |
| Abstract: | The study of economic growth is central to macroeconomics. More than anything else, macroecon-omists are concerned with finding policies that encourage growth. And by ‘growth’, they mean the growth of real GDP. This measure has become so central to macroeconomics that few economists question its validity. Our intention here is to do just that. We argue that real GDP is a deeply flawed metric. It is presented as an objective measure of economic scale. But when we look under the surface, we find crippling subjectivity. Moreover, few economists seem to realize that real GDP is based on a non-existent quantum – utility. In light of these problems, it seems to us that much of macroeconomics needs to be rethought. |
| Keywords: | aggregation,national accounting,economic growth,neoclassical economics,quality change,utility |
| JEL: | C18 M4 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:195950&r=all |
| By: | Inderst, Roman |
| Abstract: | We study strategic communication between a customer and an advisor who is privately informed about the best suitable choice for the customer, but whose preferences are misaligned with the customer's preferences. The advisor sends a message to the customer who, in turn, can secure herself from bad advice by acquiring costly information on her own. We find that making the customer's information acquisition less costly, e.g., through consumer protection regulation or digital information aggregation and dissemination, leads to less prosocial behavior of the advisor. This can be explained by a model of shared guilt, which predicts a shift in causal attribution of guilt from the advisor to the customer if the latter could have avoided her ex post disappointment. |
| Keywords: | Advice; Guilt aversion; responsibility diffusion; shared guilt; Trust |
| JEL: | C91 D82 D83 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13711&r=all |
| By: | Mi Luo; Simon Mongey |
| Abstract: | If consumption and non-wage amenities of work enter utility, holding few assets may induce a trade-off between wages and amenities when searching for a job. We establish this in a model of search with asset accumulation, extended to accommodate amenities. We then provide empirical evidence of this trade-off in the context of student debt, finding that higher debt causes graduates to accept jobs with higher wages and lower job satisfaction. In a representative sample of college graduates, we infer causality by exploiting within-college, across cohort changes in financial aid. A quantitative extension of our theoretical framework that explicitly models student debt accounts well for our empirical results. Identifying the utility value of amenities through observed search behavior, we find that high satisfaction jobs are valued at 6 percent of lifetime consumption relative to low satisfaction jobs. This trade-off is economically significant; a policy maker using only wage data to assess the welfare effects of with an income-based repayment policy would mistakenly conclude that graduates prefer a fixed repayment policy. |
| JEL: | E21 E24 J32 J38 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25801&r=all |
| By: | François Gardes (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) |
| Abstract: | The opportunity cost of time is estimated using a model based on domestic productions depending on monetary and time expenditures and a direct utility depending on produced commodities. These factors of domestic productions are measured by the matching of a Family Budget survey with a Time Use survey. The new model is estimated on Canadian, French, Polish, U.S. and Burkina-Faso statistics. It allows estimating the economic value of human life based on the integration of the marginal value of each instant during the individual's life cycle. This value is shown to give a different pattern across countries compared to their per capita GDP. Finally, the opportunity cost of time is shown to vary between commodities according to the possibility to substitute money and time in the domestic production. It also increases relatively of the average wage rate at a macro level, between countries, according to the degree of liberalization of the labor market. |
| Keywords: | opportunity cost of time,value of human life |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01903596&r=all |
| By: | Edith Archambault (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne) |
| Abstract: | Ce chapitre dans un ouvrage en l'honneur de Jean Gadrey montre son apport à la définition des services marchands et au périmètre de la Commission des comptes des services dans un premier temps. Dans un second temps ce papier s'attache à la définition de l'utilité sociale des organisations de l'économie sociale et solidaire pour laquelle Jean Gadrey a également synthétisé un vaste programme de recherche et inspiré sa définition dans la loi ESS de 2014 |
| Keywords: | utilité sociale,commission des comptes des services,comptabilité nationale,tertiaire,services marchands,intérêt général,utilité publique |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01702311&r=all |