nep-upt New Economics Papers
on Utility Models and Prospect Theory
Issue of 2020‒09‒07
24 papers chosen by

  1. Recursive objective and subjective multiple priors By Federica Ceron; Vassili Vergopoulos
  2. Experimental Asset Markets with an Indefinite Horizon By John Duffy; Janet Hua Jiang; Huan Xie
  3. Inverse Reinforcement Learning for Sequential Hypothesis Testing and Search By Kunal Pattanayak; Vikram Krishnamurthy
  4. Learning Structure in Nested Logit Models By Youssef M. Aboutaleb; Moshe Ben-Akiva; Patrick Jaillet
  5. Do farmers prefer increasing, decreasing, or stable payments in Agri-Environmental Schemes? By Douadia Bougherara; Margaux Lapierre; Raphaële Préget; Alexandre Sauquet
  6. Naive Agents with Quasi-hyperbolic Discounting and Perfect Foresight By Kirill Borissov; Mikhail Pakhnin; Ronald Wendner
  7. Asset bubble and endogenous labor supply: a clarification By Kathia Zekkari; Thomas Seegmuller
  8. Ambiguity Aversion and Individual Adaptation to Climate Change: Evidence from a Farmer Survey in Northeastern Thailand By Yoshioka, Nagisa; Yokoo, Hide-Fumi; Saengavut, Voravee; Bumrungkit, Siraprapa
  9. Transactions Costs and the Equity Premium Puzzle By Sanghyun Hong
  10. On strategy-proofness and single-peakedness:median-voting over intervals By Bettina Klaus; Panos Protopapas
  11. Kyle-Back Models with risk aversion and non-Gaussian Beliefs By Shreya Bose; Ibrahim Ekren
  12. Molecular Genetics, Risk Aversion, Return Perceptions, and Stock Market Participation By Richard Sias; Laura Starks; Harry J. Turtle
  13. Selection and Incentives under Time Pressure: The Importance of Framing By De Paola, Maria; Gioia, Francesca; Pupo, Valeria
  14. Learning Utilities and Equilibria in Non-Truthful Auctions By Hu Fu; Tao Lin
  15. Economic Shocks and Populism: The Political Implications of Reference-Dependent Preferences By Fausto Panunzi; Nicola Pavoni; Guido Tabellini
  16. Variance Contracts By Yichun Chi; Xun Yu Zhou; Sheng Chao Zhuang
  17. Semi-nonparametric Latent Class Choice Model with a Flexible Class Membership Component: A Mixture Model Approach By Georges Sfeir; Maya Abou-Zeid; Filipe Rodrigues; Francisco Camara Pereira; Isam Kaysi
  18. Data Privacy and Temptation By Zhuang Liu; Michael Sockin; Wei Xiong
  19. Fiscal policy under involuntary unemployment By Tanaka, Yasuhito
  20. Linear demand systems for differentiated goods: Overview and user's guide By Philippe Choné; Laurent Linnemer
  21. Characterization of TU games with stable cores by nested balancedness By Michel Grabisch; Peter Sudhölter
  22. Rational Inattention and Timing of Information Provision By Diego Aycinena; Alexander Elbittar; Andrei Gomberg; Lucas Rentschler
  23. Rational inattention and migration decisions By Jesus Fernandez-Huertas Moraga; Simone Bertoli; Lucas Guichard
  24. The Value of Health - Empirical Issues when Estimating the Monetary Value of a QALY Based on Well-Being By Sebastian Himmler; Jannis Stöckel; Job van Exel; Werner Brouwer

  1. By: Federica Ceron (UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12); Vassili Vergopoulos (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We provide an axiomatic characterization of recursive Maxmin preferences that stem from (possibly) incomplete preferences representing choices that are justified by hard evidence. The decision-maker disposes of objective probabilistic information that may induce dynamically inconsistent behavior. To ensure that her choices be informed by objective information, dynamically consistent, and ambiguity averse, she constructs her subjective set of priors as the rectangular hull of the objective information set. The characterization builds upon two axioms that naturally combine these three requirements in a behavioral way. Moreover, our main result suggests a principled justification for the use of recursive Maxmin preferences in applications to dynamic choice problems.
    Abstract: Nous proposons une caractérisation axiomatique des préférences Maxmin récursives sur la base de préférences incomplètes représentant les choix qui peuvent être justifiés par des preuves irréfutables. Le décideur dispose d'information probabiliste objective qui peut induite en général des comportements dynamiquement incohérents. De façon à faire en sorte que ses choix soient à la fois sensibles à l'information objective, dynamiquement cohérents et averses à l'ambiguïté, il adopte comme ensemble subjectif de priors l'enveloppe rectangulaire de l'information objective. Notre caractérisation repose sur deux axiomes qui combinent de manière naturelle ces trois exigences de manière comportementale. De plus, notre résultat principal suggère un principe de justification de l'utilisation des préférences Maxmin récursives dans les applications aux problèmes de choix dynamique.
    Keywords: Rectangularity,Rectangularization,Maxmin Expected Utility,Unanimity Rule,Dynamic Consistency,Prior-by-prior Updating,Objective and Subjective Rationality,Rectangularité,Rectangularisation,Espérance d'Utilité Maxmin,Règle d'Unanimité,Cohérence Dynamique,Mise à jour Prior par Prior,Rationalités Objectives et Subjectives
    Date: 2020–05
  2. By: John Duffy (University of California, Irvine); Janet Hua Jiang (Bank of Canada); Huan Xie (Concordia University, CIREQ)
    Abstract: We study the trade of indefinitely-lived assets in experimental markets. The traded prices of these assets are on average more than 40% below the risk-neutral fundamental value under the expected utility assumption. We examine the effects of three interrelated factors for the traded price, payoff uncertainty about the asset’s dividend payments, horizon uncertainty about the duration of trade, and the expected utility assumption. Our results suggest that horizon uncertainty does not significantly affect the traded price. Incorporating risk aversion into non-expected utility models with re-cursive preferences and probability weighting can rationalize the low prices observed in our indefinite-horizon asset markets.
    Keywords: asset pricing, behavioral finance, experiments, indefinite horizon, random termination, risk and uncertainty, expected utility, Epstein-Zin recursive preferences, probability weighting
    JEL: C91 C92 D81 G12
    Date: 2019–07
  3. By: Kunal Pattanayak; Vikram Krishnamurthy
    Abstract: This paper considers a novel formulation of inverse reinforcement learning~(IRL) with behavioral economics constraints to address inverse sequential hypothesis testing (SHT) and inverse search in Bayesian agents. We first estimate the stopping and search costs by observing the actions of these agents using Bayesian revealed preference from microeconomics and rational inattention from behavioral economics. We also solve the inverse problem of the more general rationally inattentive SHT where the agent incorporates controlled sensing by optimally choosing from various sensing modes. Second, we design statistical hypothesis tests with bounded Type-I and Type-II error probabilities to detect if the agents are Bayesian utility maximizers when their actions are measured in noise. By dynamically tuning the prior specified to the agents, we formulate an {\em active} IRL framework which enhances these detection tests and minimizes their Type-II and Type-I error probabilities of utility maximization detection. Finally, we give a finite sample complexity result which provides finite sample bounds on the error probabilities of the detection tests.
    Date: 2020–07
  4. By: Youssef M. Aboutaleb; Moshe Ben-Akiva; Patrick Jaillet
    Abstract: This paper introduces a new data-driven methodology for nested logit structure discovery. Nested logit models allow the modeling of positive correlations between the error terms of the utility specifications of the different alternatives in a discrete choice scenario through the specification of a nesting structure. Current nested logit model estimation practices require an a priori specification of a nesting structure by the modeler. In this we work we optimize over all possible specifications of the nested logit model that are consistent with rational utility maximization. We formulate the problem of learning an optimal nesting structure from the data as a mixed integer nonlinear programming (MINLP) optimization problem and solve it using a variant of the linear outer approximation algorithm. We exploit the tree structure of the problem and utilize the latest advances in integer optimization to bring practical tractability to the optimization problem we introduce. We demonstrate the ability of our algorithm to correctly recover the true nesting structure from synthetic data in a Monte Carlo experiment. In an empirical illustration using a stated preference survey on modes of transportation in the U.S. state of Massachusetts, we use our algorithm to obtain an optimal nesting tree representing the correlations between the unobserved effects of the different travel mode choices. We provide our implementation as a customizable and open-source code base written in the Julia programming language.
    Date: 2020–08
  5. By: Douadia Bougherara (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Margaux Lapierre (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Raphaële Préget (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Alexandre Sauquet (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: Nearly all Agri-Environmental Schemes (AES) offer stable annual payments over theduration of the contract. Yet AES are often intended to be a transition tool, designed totrigger changes in farming practices rather than to support them indefinitely. A decreasingsequence of payments thus appears particularly attractive as a reward structure for AES.The standard discounted utility model supports this notion by predicting that individualsshould prefer a decreasing sequence of payments if the total sum of outcomes is con-stant. Nevertheless, the literature shows that numerous mechanisms, such as increasingproductivity, anticipatory pleasure, and loss aversion, can, by contrast, incline individualsto favor an increasing sequence of payments. To understand the preferences of farmersfor different payment sequences, we propose a review of the mechanisms highlighted bythe literature in psychology and economics. We then test farmers' preferences for stable,increasing or decreasing payments through a choice experiment (CE) survey. In this sur-vey, farmers are offered hypothetical contracts rewarding the planting of cover crops. Toreduce hypothetical bias, the choice cards were designed following repeated interactionswith local stakeholders. One hundred twenty-three French farmers, about 15% of thosecontacted, responded to the survey. Overall, farmers do not present a clear willingnessto depart from the usual stable payments. Nevertheless, 17% declare a preference for in-creasing sequences of payment. Moreover, we find a significant rejection of decreasingpayments by farmers with a lower discount rate or farmers more willing to take risks thanthe median farmer, contradicting the discounted utility model
    Keywords: Choice experiment,Cover crops,Farming practices,Sequences of outcomes,Agri-Environmental Schemes,Discounted utility
    Date: 2020–07–07
  6. By: Kirill Borissov; Mikhail Pakhnin; Ronald Wendner
    Abstract: We consider the Ramsey growth model with quasi-hyperbolic discounting where the agent cannot commit to future actions and is naive about her time inconsistency. We study the problem of observational equivalence, i.e., whether consumption paths are the same under quasi-hyperbolic and exponential discounting. To describe the behavior of a naive agent in a general equilibrium framework, we introduce the notion of a sliding equilibrium path and distinguish between two natural types of expectations: pseudo-prefect foresight and perfect foresight. Under pseudo-prefect foresight an agent at each date recalculates both her consumption path and expectations about prices, while under perfect foresight an agent correctly foresees prices on a sliding equilibrium path and is naive only about her time inconsistency. The main contribution of this paper is the study of a sliding equilibrium path under perfect foresight. We prove its existence for a general isoelastic utility function and show that, except for the well-known cases of a constant interest rate or logarithmic utility, there is no observational equivalence in general. In a number of important cases we also compare sliding equilibria under pseudo-perfect and perfect foresight in terms of long-run macroeconomic variables, and show that perfect foresight implies a higher capital stock and a higher consumption level than pseudo-perfect foresight.
    Keywords: quasi-hyperbolic discounting, observational equivalence, time inconsistency, naive agents, perfect foresight
    JEL: D91 E21 O40
    Date: 2020–08–20
  7. By: Kathia Zekkari (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université); Thomas Seegmuller (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université)
    Abstract: This paper analyzes the link between asset bubbles, endogenous labor and capital. The question is whether endogenous labor, per se, can explain a crowding-in effect of the bubble, i.e. higher levels of capital and labor. With respect to the existing literature, our contribution is twofold. First, we explicitly and theoretically derive the conditions to have a crowding-in effect of the bubble. Second, the utility function we consider allows us to show that this result does not require an arbitrarily high elasticity of intertemporal substitution in consumption. Our result still holds for a unit value of this elascticity (Cobb-Douglas utility).
    Keywords: Asset bubbles,crowding-in effect,endogenous labor,overlapping generations
    Date: 2020–07–02
  8. By: Yoshioka, Nagisa; Yokoo, Hide-Fumi; Saengavut, Voravee; Bumrungkit, Siraprapa
    Abstract: Understanding the triggers of individual adaptation behavior is critical for empowering those who are highly vulnerable to climate change. This study explores the effect of ambiguity aversion on adaptation behaviors in the context of climate change. We conduct a field survey on 230 rice farmers in northeastern Thailand to examine the association between the elicited ambiguity aversion and the implementation of climate change adaptation. We find that ambiguity aversion does not encourage farmers’ adaptation behaviors and can even discourage the uptake of adaptation strategies. The role of ambiguity aversion varies depending on the characteristics of the adaptation strategy: Ambiguity-averse farmers are less likely to adopt adaptation strategies that entail shifts from the status quo. A deliberate approach is needed to understand farmers’ adaptation behaviors outside the laboratory setting and to reduce ambiguity in the results concerning adaptation to increasing climate risk.
    Keywords: ambiguity aversion, climate change adaptation, Thailand, weather index insurance
    JEL: O13 Q12 Q54
    Date: 2020–08
  9. By: Sanghyun Hong (University of Canterbury)
    Abstract: Campbell and Cochrane's (1999b) habit formation model is able to resolve the equity premium and riskless interest rate puzzles, but only for high values of relative risk aversion. In this paper, I incorporate transactions costs in the Campbell and Cochrane model and find that the required level of relative risk aversion at the steady state reduces from 35 to 15. Thus, transactions costs seem able to reduce, but not completely solve, the remaining puzzle.
    Keywords: Transaction Costs; Equity Premium Puzzle
    JEL: G00 G12
    Date: 2020–08–01
  10. By: Bettina Klaus; Panos Protopapas
    Abstract: We study correspondences that choose an interval of alternatives when agents have single-peaked preferences over locations and ordinally extend their preferences over intervals. We extend the main results of Moulin (1980) to our setting and show that the results of Ching (1997) cannot always be similarly extended. First, strategy-proofness and peaks-onliness characterize the class of generalized median correspondences (Theorem 1). Second, this result neither holds on the domain of symmetric and single-peaked preferences, nor can in this result min/max continuity substitute peaks-onliness (see counter-Example 3). Third, strategy-proofness and voter-sovereignty characterize the class of ecient generalized median correspondences (Theorem 2).
    Keywords: correspondences; generalized median correspondences; single-peaked preferences;strategy-proofness
    JEL: C71 D63 D78 H41
    Date: 2020–07
  11. By: Shreya Bose; Ibrahim Ekren
    Abstract: We show that the problem of existence of equilibrium in Kyle's continuous time insider trading model ([31]) can be tackled by considering a system of quasilinear parabolic equation and a Fokker-Planck equation coupled via a transport type constraint. By obtaining a stochastic representation for the solution of such a system, we show the well-posedness of solutions and study the properties of the equilibrium obtained for small enough risk aversion parameter. In our model, the insider has exponential type utility and the belief of the market on the distribution of the price at final time can be non-Gaussian.
    Date: 2020–08
  12. By: Richard Sias; Laura Starks; Harry J. Turtle
    Abstract: We show that molecular variation in DNA related to cognition, personality, health, and body shape, predicts an individual’s equity market participation and risk aversion. Moreover, the molecular genetic endowments predict individuals’ return perceptions, most of which we find to be strikingly biased. The genetic endowments also strongly associate with many of the investor characteristics (e.g., trust, sociability, wealth) shown to explain heterogeneity in equity market participation. Our analysis helps elucidate why financial choices are heritable and how genetic endowments can help explain the links between financial choices, risk aversion, beliefs, and other variables known to explain stock market participation.
    JEL: D87 G11
    Date: 2020–08
  13. By: De Paola, Maria (University of Calabria); Gioia, Francesca (University of Milan); Pupo, Valeria (University of Calabria)
    Abstract: In this paper we investigate whether the framing of the incentives used to foster participation into contexts characterized by high degrees of time pressure affects individuals' self-selection. At this aim we run a lab-in-the-field experiment structured in two parts. The first part investigates individual characteristics that affect performance under time pressure, while the second is devoted to analyze how the decision to work under time pressure is affected by the reward/punishment framing of incentives. We find that individuals characterized by a high degree of risk aversion perform worse under time pressure. Nonetheless, when facing a penalty incentive scheme these individuals are more likely to choose to work with strict term limits, suggesting that penalty contracts might generate adverse selection problems.
    Keywords: time pressure, bonus, penalty, incentive schemes, framing, selection, lab-in-the-field experiment
    JEL: C9 C91 D01 D91 J33
    Date: 2020–07
  14. By: Hu Fu; Tao Lin
    Abstract: In non-truthful auctions, agents' utility for a strategy depends on the strategies of the opponents and also the prior distribution over their private types; the set of Bayes Nash equilibria generally has an intricate dependence on the prior. Using the First Price Auction as our main demonstrating example, we show that $\tilde O(n / \epsilon^2)$ samples from the prior with $n$ agents suffice for an algorithm to learn the interim utilities for all monotone bidding strategies. As a consequence, this number of samples suffice for learning all approximate equilibria. We give almost matching (up to polylog factors) lower bound on the sample complexity for learning utilities. We also consider settings where agents must pay a search cost to discover their own types. Drawing on a connection between this setting and the first price auction, discovered recently by Kleinberg et al. (2016), we show that $\tilde O(n / \epsilon^2)$ samples suffice for utilities and equilibria to be estimated in a near welfare-optimal descending auction in this setting. En route, we improve the sample complexity bound, recently obtained by Guo et al. (2019), for the Pandora's Box problem, which is a classical model for sequential consumer search.
    Date: 2020–07
  15. By: Fausto Panunzi; Nicola Pavoni; Guido Tabellini
    Abstract: This paper studies electoral competition over redistributive taxes between a safe incumbent and a risky opponent. As in prospect theory, economically disappointed voters become risk lovers, and hence are intrinsically attracted by the more risky candidate. We show that, after a large adverse economic shock, the equilibrium can display policy divergence: the more risky candidate proposes lower taxes and is supported by a coalition of very rich and very disappointed voters, while the safe candidate proposes higher taxes. This can explain why new populist parties are often supported by economically dissatisfied voters and yet they run on economic policy platforms of low redistribution. We show that survey data on the German SOEP are consistent with our theoretical predictions on voters’ behavior.
    Date: 2020
  16. By: Yichun Chi; Xun Yu Zhou; Sheng Chao Zhuang
    Abstract: We study the design of an optimal insurance contract in which the insured maximizes her expected utility and the insurer limits the variance of his risk exposure while maintaining the principle of indemnity and charging the premium according to the expected value principle. We derive the optimal policy semi-analytically, which is coinsurance above a deductible when the variance bound is binding. This policy automatically satisfies the incentive-compatible condition, which is crucial to rule out ex post moral hazard. We also find that the deductible is absent if and only if the contract pricing is actuarially fair. Focusing on the actuarially fair case, we carry out comparative statics on the effects of the insured's initial wealth and the variance bound on insurance demand. Our results indicate that the expected coverage is always larger for a wealthier insured, implying that the underlying insurance is a normal good, which supports certain recent empirical findings. Moreover, as the variance constraint tightens, the insured who is prudent cedes less losses, while the insurer is exposed to less tail risk.
    Date: 2020–08
  17. By: Georges Sfeir; Maya Abou-Zeid; Filipe Rodrigues; Francisco Camara Pereira; Isam Kaysi
    Abstract: This study presents a semi-nonparametric Latent Class Choice Model (LCCM) with a flexible class membership component. The proposed model formulates the latent classes using mixture models as an alternative approach to the traditional random utility specification with the aim of comparing the two approaches on various measures including prediction accuracy and representation of heterogeneity in the choice process. Mixture models are parametric model-based clustering techniques that have been widely used in areas such as machine learning, data mining and patter recognition for clustering and classification problems. An Expectation-Maximization (EM) algorithm is derived for the estimation of the proposed model. Using two different case studies on travel mode choice behavior, the proposed model is compared to traditional discrete choice models on the basis of parameter estimates' signs, value of time, statistical goodness-of-fit measures, and cross-validation tests. Results show that mixture models improve the overall performance of latent class choice models by providing better out-of-sample prediction accuracy in addition to better representations of heterogeneity without weakening the behavioral and economic interpretability of the choice models.
    Date: 2020–07
  18. By: Zhuang Liu; Michael Sockin; Wei Xiong
    Abstract: This paper derives a preference for data privacy from consumers' temptation utility. This approach facilitates a welfare analysis of different data privacy regulations, such as the GDPR enacted by the European Union and the CCPA enacted by the state of California, when a fraction of the consumers may succumb to targeted advertising of temptation goods. While sharing consumer data with firms improves firms' matching efficiency of normal consumption goods, it also exposes weak-willed consumers to temptation goods. Despite that the GDPR and the CCPA give each consumer the choice to opt in or out of data sharing, these regulations may not provide sufficient protection for severely tempted consumers because of a negative externality in which the opt-in decision of some consumers reduces the anonymity of those who opt out. Our analysis also shows that the default choices instituted by the GDPR and the CCPA can lead to sharply different outcomes.
    JEL: D03 D62 M15
    Date: 2020–08
  19. By: Tanaka, Yasuhito
    Abstract: We show the existence of involuntary unemployment based on consumers' utility maximization and firms' profit maximization behavior under monopolistic competition with increasing, decreasing or constant returns to scale technology using a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods. We also analyze the effects of fiscal policy financed by tax and budget deficit (or seigniorage) to realize full-employment under a situation with involuntary unemployment. We show the following results. 1) In order to maintain the steady state where employment increases at some positive rate, we need a budget deficit. Therefore, we need budget deficit to realize full-employment from a state with involuntary unemployment (Proposition 1). 2) If the full-employment state is realized, we do not need budget deficit to maintain full-employment (Proposition 2). Additionally we present a game-theoretic interpretation of involuntary unemployment and full-employment.
    Keywords: Involuntary unemployment, Three-periods overlapping generations model, Monopolistic competition, Nash equilibrium
    JEL: E12 E24
    Date: 2020–08–19
  20. By: Philippe Choné (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - CNRS - Centre National de la Recherche Scientifique - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique); Laurent Linnemer (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - CNRS - Centre National de la Recherche Scientifique - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique)
    Abstract: Linear demand systems and quasi-linear quadratic utility models are widely used in industrial economics. We clarify the link between the two settings and explain their exact origin as it seems to be little known by practitioners. We offer practical recommendations to achieve consistency, tractability and a reasonable degree of generality when using the linear demand framework. We show that all tractable versions of the model used in practice are (almost) identical and have a mean-variance structure. We provide concise, ready-to-use formulae for the symmetric model. Finally, we revisit and extend the asymmetric model of Shubik and Levitan.
    Date: 2020–06–26
  21. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Peter Sudhölter (Department of Business and Economics - SDU - University of Southern Denmark)
    Abstract: A balanced transferable utility game (N, v) has a stable core if its core is externally stable, that is, if each imputation that is not in the core is dominated by some core element. Given two payoff allocations x and y, we say that x outvotes y via some coalition S of a feasible set if x dominates y via S and x allocates at least v(T) to any feasible T that is not contained in S. It turns out that outvoting is transitive and the set M of maximal elements with respect to outvoting coincides with the core if and only if the game has a stable core. By applying the duality theorem of linear programming twice, it is shown that M coincides with the core if and only if a certain nested balancedness condition holds. Thus, it can be checked in finitely many steps whether a balanced game has a stable core. We say that the game has a super-stable core if each payoff vector that allocates less than v(S) to some coalition S is dominated by some core element and prove that core super-stability is equivalent to vital extendability, requiring that each vital coalition is extendable.
    Abstract: Un jeu à utilité transférable équilibré (N,v) a un coeur stable si son coeur est externalement stable, c'est-à-dire si chaque imputation hors du coeur est dominée par un élément du coeur. Etant donné deux paiements x et y, on dit que x surclasse y via une coalition S d'un ensemble réalisable si x dominie y via S et si x alloue au moins v(T) à toute coalition réalisable T qui n'est pas contenue dans S. Il s'ensuit que la relation de surclassement est transitive et que l'ensemble M des éléments maximaux par rapport au surclassement coïncide avec le coeur si et seulement si une certaine condition emboîtée d'équilibrage est vérifiée. Ainsi, on peut vérifier en un nombre fini d'étapes si un jeu équilibré à un coeur stable. On dit qu'un jeu a un coeur super-stable si tout vecteur de paiement qui alloue moins que v(S) à une coalition S est dominé par un élément du coeur, et nous prouvons que la super-stabilité du coeur est équivalente à l'étendabilité vitale, qui requiert que toute coalition vitale soit étendable.
    Keywords: Domination,stable set,core,TU game,ensemble stable,coeur,jeux TU
    Date: 2020–05
  22. By: Diego Aycinena (Department of Economics, Universidad del Rosario; Economic Science Institute, Chapman University); Alexander Elbittar (Department of Economics, CIDE); Andrei Gomberg (Department of Economics, ITAM;; Lucas Rentschler (Utah State University;
    Abstract: We consider the issue of how timing of provision of additional information affects information-acquisition incentives. In environments with costly attention, a sufï¬ ciently conï¬ dent agent may choose to act based on the prior, without incurring those costs. However, a promise of additional information in the future may be used to encourage additional attentional effort. This may be viewed as a novel empirical implication of rational inattention. In a lab experiment designed to test this theoretical prediction, we show that promise of future “free†information induces subjects to acquire information which they would not be acquiring without such a promise.
    Keywords: Information Acquisition; Rational Ignorance; Experiments
    JEL: C72 C90 D44 D80
    Date: 2020
  23. By: Jesus Fernandez-Huertas Moraga (UAM - Universidad Autonoma de Madrid); Simone Bertoli (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Lucas Guichard
    Abstract: Acquiring information about destinations can be costly for migrants. We model information frictions in the rational inattention framework and obtain a closed-form expression for a migration gravity equation that we bring to the data. The model predicts that flows from countries with a higher cost of information or stronger priors are less responsive to variations in economic conditions in the various destinations, as migrants rationally get less information before deciding where to move. The economet-ric analysis reveals systematic heterogeneity in the pro-cyclical behavior of migration flows across origins that is consistent with the existence of information frictions.
    Keywords: international migration,D83,information,rational inattention,gravity equation JEL codes: F22,D81
    Date: 2020–07
  24. By: Sebastian Himmler; Jannis Stöckel; Job van Exel; Werner Brouwer
    Abstract: Cost-utility analysis compares the monetary cost of health interventions to the associated health consequences expressed using quality-adjusted life years (QALYs). At whichthreshold the ratio of both is still acceptable is a highly contested issue. Obtaining societal valuations of the monetary value of a QALY can help in setting such threshold values but it remains methodologically challenging. A recent study applied the well-being valuation approach to calculate such a monetary value using a compensating income variation approach. We explore the feasibility of this approach in a different context, using large-scale panel data from Germany. We investigate several important empirical and conceptual challenges such as the appropriate functional specification of income and the health state dependence of consumption utility. The estimated monetary values range from e20,000-60,000 with certain specifications leading to considerable deviations, underlining persistent practical challenges when applying the well-being valuation methodology to QALYs. Recommendations for future applications are formulated.
    Keywords: Quality-adjusted life years, health valuation, well-being valuation, panel data,instrumental variable regression, piecewise regression
    JEL: D61 I18 I31 C33 C36
    Date: 2020

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