nep-upt New Economics Papers
on Utility Models and Prospect Theory
Issue of 2021‒09‒20
25 papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Partial utilitarianism By Eric Danan
  2. Structural Estimation of Matching Markets with Transferable Utility By Alfred Galichon; Bernard Salani\'e
  3. Temporal Risk Resolution: Utility versus Probability Weighting Approaches By Mohammed Abdellaoui; Enrico Diecidue; Emmanuel Kemel; Ayse Onculer
  4. To test or not to test? Risk attitudes and prescribing by French GPs By Emmanuel Kemel; Antoine Nebout; Bruno Ventelou
  5. On the meaning of the Critical Cost Efficiency Index By Federico Echenique
  6. Risking the Future? Measuring Risk Attitudes towards Delayed Consequences By Emmanuel Kemel; Corina Paraschiv
  7. Reflecting on reflection: prospect theory, our behaviours, and our environment By Oliver, Adam
  8. The Australian Twins Economic Preferences Survey By Kettlewell, Nathan; Tymula, Agnieszka
  9. Contest Design with Threshold Objectives By Edith Elkind; Abheek Ghosh; Paul Goldberg
  10. Hooked on weight control: An economic theory of anorexia nervosa, and its impact on health and longevity By Strulik, Holger
  11. Entrepreneurial Migration By Bryan, Kevin; Guzman, Jorge
  12. James Buchanan: Clubs and Alternative Welfare Economics By Alain Marciano
  13. Fair Utilitarianism By Marc Fleurbaey; Stéphane Zuber
  14. Semi-parametric estimation of the EASI model: Welfare implications of taxes identifying clusters due to unobserved preference heterogeneity By Andr\'es Ram\'irez-Hassan; Alejandro L\'opez-Vera
  15. On the possibility of an anti-paternalist behavioural welfare economics By Thoma, Johanna
  16. Measuring Inflation: Criticism and Solution By Laczó, Ferenc
  17. A critical perspective on the conceptualization of risk in behavioral and experimental finance By Felix Holzmeister; Christoph Huber; Stefan Palan
  18. Optimal transport weights for causal inference By Eric Dunipace
  19. A Note on Adverse Selection and Bounded Rationality By Yamashita, Takuro; Murooka, Takeshi
  20. Discounting Behavior in Problem Gambling By Ring, Patrick; Probst, Catharina C.; Neyse, Levent; Wolff, Stephan; Kaernbach, Christian; van Eimeren, Thilo; Schmidt, Ulrich
  21. Pricing Indefinitely Lived Assets: Experimental Evidence By John Duffy; Janet Hua Jiang; Huan Xie
  22. Longing for Which Home: Evidence from Global Aspirations to Stay, Return or Migrate Onwards By Bekaert, Els; Constant, Amelie F.; Foubert, Killian; Ruyssen, Ilse
  23. A Behavioural Model of Investment Appraisal and its Implications for the Macroeconomy By Michelle Baddeley; Geoff Harcourt
  24. Bayesian Persuasion With Costly Information Acquisition By Ludmila Matysková; Alfonso Montes
  25. Infinite utility: counterparts and ultimate locations By Adam Jonsson

  1. By: Eric Danan (CY - CY Cergy Paris Université, CNRS - Centre National de la Recherche Scientifique, THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)
    Abstract: Mongin (1994) proved a multi-profile version of Harsanyi (1955)'s Aggregation Theorem: within the expected utility model, a social welfare functional mapping profiles of individual utility functions into social preference relations satisfies the Pareto and Independence of Irrelevant Alternatives principles if and only if it is utilitarian. The present paper extends Mongin's analysis by allowing individuals to have incomplete preferences, represented by sets of utility functions. An impossibility theorem is first established: social preferences cannot satisfy all the expected utility axioms, precluding utilitarian aggregation in this extended setting. Adapting the objective vs. subjective rationality approach of Gilboa et al. (2010) to the present social choice settings representation theorems are then obtained by relaxing either the Completeness or the Independence axioms at the social level, yielding two forms of partial utilitarianism.
    Keywords: Aggregation,expected utility,completeness,independence,utilitarianism,social rationality
    Date: 2021–08–27
  2. By: Alfred Galichon; Bernard Salani\'e
    Abstract: This paper provides an introduction to structural estimation methods for matching markets with transferable utility.
    Date: 2021–09
  3. By: Mohammed Abdellaoui (GREGHEC, HEC Paris - Ecole des Hautes Etudes Commerciales, CNRS - Centre National de la Recherche Scientifique); Enrico Diecidue (Insead - INSEAD - INSEAD); Emmanuel Kemel (GREGHEC, HEC Paris - Ecole des Hautes Etudes Commerciales, CNRS - Centre National de la Recherche Scientifique); Ayse Onculer (ESSEC Business School - Essec Business School)
    Abstract: This paper reports two experiments in which attitudes towards temporal risk resolution is elicited from choices between two-outcome lotteries that pay out at some future fixed date and can be resolved either now or later. We show that matching probabilities provides a simple method to measure attitudes towards temporal resolution-via the utility scaleunder Kreps and Porteus' (1978) recursive expected utility. We also analyze our data using a general recursive model that can reveal attitudes towards temporal risk resolution through the utility scale and/or the probability weighting scale. In terms of goodness of fit, as well as of prediction accuracy, our results point to a better performance of the probability weighting approach. More specifically, we show that individuals become less sensitive and more pessimistic with respect to winning probabilities when lotteries are resolved later rather than now.
    Keywords: Temporal resolution of uncertainty,temporal risk,recursive expected utility,preference for early resolution,probability weighting,recursive rank-dependent utility,time preference,risk preference
    Date: 2021–08–31
  4. By: Emmanuel Kemel (GREGHEC, HEC Paris - Ecole des Hautes Etudes Commerciales, CNRS - Centre National de la Recherche Scientifique); Antoine Nebout (INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Bruno Ventelou (CNRS - Centre National de la Recherche Scientifique)
    Abstract: Risk is a key dimension of economic decisions, but whether risk attitudes can predict real economic behaviour is still subject to investigation. We measure general practitioners' (GPs) risk attitudes and check for a relationship with variations in prescribing practices. Individual-level risk attitudes are elicited from simple survey choices on a representative national panel of 939 French GPs, and are linked to their volume of lab-test prescriptions through administrative records. Specifically, we estimate individual components of a flexible decision model under risk (rank-dependent utility) using random-coefficient estimations, and then treat these components as predictors of observed lab-test prescribing. We find that (1) GPs exhibit the usual patterns of risk attitudes: risk aversion and inverse S-shaped probability weighting prevails (2) risk aversion captured by the utility function is positively correlated with lab-test prescribing.
    Keywords: General practitioners,risk attitudes,rank-dependent utility,lab-test prescribing,practice variation
    Date: 2021–08–31
  5. By: Federico Echenique
    Abstract: This note provides a critical discussion of the \textit{Critical Cost-Efficiency Index} (CCEI) as used to assess deviations from utility-maximizing behavior. I argue that the CCEI is hard to interpret, and that it can disagree with other plausible measures of "irrational" behavior. The common interpretation of CCEI as wasted income is questionable. Moreover, I show that one agent may have more unstable preferences than another, but seem more rational according to the CCEI. This calls into question the (now common) use of CCEI as an ordinal and cardinal measure of degrees of rationality.
    Date: 2021–09
  6. By: Emmanuel Kemel (GREGHEC, HEC Paris - Ecole des Hautes Etudes Commerciales, CNRS - Centre National de la Recherche Scientifique); Corina Paraschiv (LIRAES - EA 4470 - Laboratoire Interdisciplinaire de Recherche Appliquée en Economie de la Santé - UP - Université de Paris)
    Abstract: This paper presents an experiment that investigates differences of risk attitudes in decisions with immediate versus delayed consequences. Our experimental design allows to control for the effects of discounting and timing of risk resolution. We show that individuals are more risk tolerant in situations involving delayed consequences. Investigations based on rank-dependent utility show that this finding is mainly driven by probability weighting. More precisely, probability weighting is more elevated for delayed consequences, suggesting an overall increase in decision maker's optimism regarding the chances of success associated to risks for which consequences materialize in the future.
    Keywords: Risk Attitudes,Time,Rank Dependent Utility,Delay,Future Consequences D81,D90,C91
    Date: 2021–08–31
  7. By: Oliver, Adam
    Abstract: In a previously published article, I reported some tests of prospect theory’s reflection effect over outcomes defined by money and life years gained from treatment. Those results suggested qualified support for the reflection effect over money outcomes and strong support over longevity outcomes. This article reruns those tests while accounting for the intensity of individual risk attitudes, and, overall, show consistency with the reflection effect. However, I argue that these results do not necessarily offer support for the explanatory power of prospect theory. Rather, the results may be driven by evolved responses to circumstances that provoke perceptions of scarcity and abundance. Therefore, from an ecological perspective, behavioural patterns such as those that are consistent with the reflection effect, which, by extension, tend to be considered as erroneous or biased by most behavioural economists because they conflict with the postulates of rational choice theory, may not be unreasonable. Recognising as such is important when considering how behavioural insights ought to inform public policy design and implementation.
    Keywords: expected utility theory; prospect theory; reflection effect; risk intensity; risk sensitivity theory
    JEL: J1
    Date: 2021–09–13
  8. By: Kettlewell, Nathan (University of Technology, Sydney); Tymula, Agnieszka (University of Sydney)
    Abstract: This paper describes the Australian Twins Economic Preferences Survey (ATEPS). The dataset comprises a wide variety of preference and behavioral measures (risk aversion, impatience, ambiguity aversion, trust, confidence) elicited using incentivised decision tasks. 1,120 Australian adult twins (560 pairs) completed the survey, making it one of the largest datasets containing incentivised preference measures of twins. As the survey was conducted during the COVID-19 pandemic, we also collected information on experiences related to the pandemic, along with a variety of questions on political attitudes and mental wellbeing. We hope that ATEPS can make a valuable contribution to social science and genetics research.
    Keywords: economic preferences, twins, twin study
    JEL: D90 D91 I10 Y90
    Date: 2021–08
  9. By: Edith Elkind; Abheek Ghosh; Paul Goldberg
    Abstract: We study contests where the designer's objective is an extension of the widely studied objective of maximizing the total output: The designer gets zero marginal utility from a player's output if the output of the player is very low or very high. We model this using two objective functions: binary threshold, where a player's contribution to the designer's utility is 1 if her output is above a certain threshold, and 0 otherwise; and linear threshold, where a player's contribution is linear if her output is between a lower and an upper threshold, and becomes constant below the lower and above the upper threshold. For both of these objectives, we study (1) rank-order allocation contests that use only the ranking of the players to assign prizes and (2) general contests that may use the numerical values of the players' outputs to assign prizes. We characterize the optimal contests that maximize the designer's objective and indicate techniques to efficiently compute them. We also prove that for the linear threshold objective, a contest that distributes the prize equally among a fixed number of top-ranked players offers a factor-2 approximation to the optimal rank-order allocation contest.
    Date: 2021–09
  10. By: Strulik, Holger
    Abstract: In this paper, I combine economic theories of health behavior and addiction in order to explain the phenomenon of anorexia nervosa and its impact on health and longevity. Individuals consume normal goods and foods and can work off excess calories with physical exercise. There exists a healthy body mass index and deviations from it increasingly cause health deficits due to obesity or underweight. There exists also a subjective target weight and being heavier than target weight causes a loss of utility from body image. Individuals for whom the utility loss from missing target weight is large exert more weight control, i.e. they eat less and exercise more. Anorexia is initiated in individuals who are particularly successful in weight control and prone to addiction. Addiction to weight control motivates anorexic individuals to perpetually adjust their target weight downwards and to eat less and exercise more. With declining weight, health deficits accumulate faster and mortality risk rises. I calibrate the model to a reference American with bmi 28. Due to weight loss addiction, the bmi gradually declines to a level of 15 and causes a loss of 21 years of life expectancy at the age of 20.
    Keywords: weight control,addiction,eating disorder,physical exercise,healthde cits,mortality
    JEL: D11 D91 E21 I10 I12
    Date: 2021
  11. By: Bryan, Kevin; Guzman, Jorge
    Abstract: We use cross-state business registrations to track the geographic movement of startups with high growth potential. In their first five years, 6.6% percent of these startups move across state borders. Though startup births are concentrated geographically, hubs like Silicon Valley and Boston on net lose startups to entrepreneurial migration. A revealed preference approach nonparametrically identifies the average utility of cities to migrant founders. University towns and startup hubs have low relative utility. This pattern is due neither to vertical sorting nor industrial specialization. The higher-quality startups move to lower-tax, business-friendly cities, while less growth-oriented startups move to low-tax, high-amenity cities.
    Date: 2021–09–08
  12. By: Alain Marciano (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier, UM - Université de Montpellier)
    Abstract: Buchanan did not write "An Economic Theory of Club" to complement Samuelson's analysis of public goods, but to develop a radically different, form of welfare economics – in which there is no social welfare function and individual utility functions cannot be "read" by external observers. It was the perspective Buchanan adopted to analyze the pricing of public goods and services, and from which he also envisaged clubs. The main feature Buchanan attributed to clubs was to implement a condition that made no sense in Samuelson's framework but that was crucial in Buchanan's and clubs made Samuelson's collective condition useless. Buchanan and Samuelson disagreed over the allocation of the costs of the public good on each individual. To Buchanan, it was by relying on individual's preferences. To Samuelson, by using a social welfare function. This has not much to do with the nature of the good, its "physical properties" to use Buchanan's words.
    Date: 2021–08–01
  13. By: Marc Fleurbaey (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Stéphane Zuber (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: Utilitarianism plays a central role in economics, but there is a gap between theory, where it is dominant, and applications, where monetary criteria are often used. For applications, a key di culty for utilitarianism remains to de ne how utilities should be measured and compared across individuals. Drawing on Harsanyi's approach (Harsanyi, 1955) involving choices in risky situations, we introduce a new normalization of utilities that is the only one ensuring that: 1) a transfer from a rich to a poor is welfare enhancing, and 2) populations with more risk averse people have lower welfare. We embed these requirements in a new characterization of utilitarianism and study some implications of this "fair utilitarianism" for risk sharing, collective risk aversion and the design of health policy.
    Keywords: Fairness,social risk,utilitarianism
    Date: 2021–05
  14. By: Andr\'es Ram\'irez-Hassan; Alejandro L\'opez-Vera
    Abstract: We provide a novel inferential framework to estimate the exact affine Stone index (EASI) model, and analyze welfare implications due to price changes caused by taxes. Our inferential framework is based on a non-parametric specification of the stochastic errors in the EASI incomplete demand system using Dirichlet processes. Our proposal enables to identify consumer clusters due to unobserved preference heterogeneity taking into account, censoring, simultaneous endogeneity and non-linearities. We perform an application based on a tax on electricity consumption in the Colombian economy. Our results suggest that there are four clusters due to unobserved preference heterogeneity; although 95% of our sample belongs to one cluster. This suggests that observable variables describe preferences in a good way under the EASI model in our application. We find that utilities seem to be inelastic normal goods with non-linear Engel curves. Joint predictive distributions indicate that electricity tax generates substitution effects between electricity and other non-utility goods. These distributions as well as Slutsky matrices suggest good model assessment. We find that there is a 95% probability that the equivalent variation as percentage of income of the representative household is between 0.60% to 1.49% given an approximately 1% electricity tariff increase. However, there are heterogeneous effects with higher socioeconomic strata facing more welfare losses on average. This highlights the potential remarkable welfare implications due taxation on inelastic services.
    Date: 2021–09
  15. By: Thoma, Johanna
    Abstract: Behavioural economics has taught us that human agents don’t always display consistent, context-independent and stable preferences in their choice behaviour. Can we nevertheless do welfare economics in a way that lives up to the anti-paternalist ideal most economists subscribe to? I here discuss Sugden’s powerful critique of most previous attempts at doing so, which he dubs the ‘New Consensus’, as appealing to problematic notions of latent preference and inner rational agency. I elaborate on a fundamental rethinking of the normative foundations of anti-paternalist welfare measurement that often remains implicit in the behavioural welfare economics literature Sugden discusses, but which is required to make these accounts minimally plausible. I argue that, if we go along with this rethinking, Bernheim and Rangel’s (2007, 2009) choice-theoretic framework withstands Sugden’s criticism. Sugden’s own, more radical proposal is thus under-motivated by his critique of the ‘New Consensus’.
    Keywords: behavioural economics; welfare economics; anti-paternalism; preference purification; choice
    JEL: N0
    Date: 2021–08–31
  16. By: Laczó, Ferenc
    Abstract: In this study the concept of commodities is formulated according to the utility theory; following the principle of price elasticity of demand, differences of uncompensated and compensated price changes will be clearly interpreted; as the uncompensated and compensated price changes have different averaging properties, so two different CPI formulas need to be defined; arbitrary price changes are broken down into uncompensated and compensated price change to obtain a complete, dual CPI formula.
    Keywords: Economic Value of a Commodity; Uncompensated vs. Compensated Price Change; Common Units in Measurements; Dual CPI Formula; Supply-Driven and Demand-Driven Economy
    JEL: E31
    Date: 2021–06–30
  17. By: Felix Holzmeister (Department of Economics, University of Innsbruck); Christoph Huber (Institute of Markets and Strategy, Vienna University of Economics and Business); Stefan Palan (Institute of Banking and Finance, University of Graz)
    Abstract: Risk is one of the key aspects in financial decision-making and therefore an integral part of the behavioral economics and finance literature. Focusing on the conceptualization of the term ``risk'', which researchers have addressed from numerous angles, this comment aims to offer a critical perspective on the interactions between risk preferences (a latent trait), risk perceptions (how individuals judge whether something is risky), and risk-taking behavior as distinct concepts, and hence to guide future research on (individual-level) decision-making processes in this direction.
    Date: 2021–09–15
  18. By: Eric Dunipace
    Abstract: Weighting methods are a common tool to de-bias estimates of causal effects. And though there are an increasing number of seemingly disparate methods, many of them can be folded into one unifying regime: causal optimal transport. This new method directly targets distributional balance by minimizing optimal transport distances between treatment and control groups or, more generally, between a source and target population. Our approach is model-free but can also incorporate moments or any other important functions of covariates that the researcher desires to balance. We find that the causal optimal transport outperforms competitor methods when both the propensity score and outcome models are misspecified, indicating it is a robust alternative to common weighting methods. Finally, we demonstrate the utility of our method in an external control study examining the effect of misoprostol versus oxytocin for treatment of post-partum hemorrhage.
    Date: 2021–09
  19. By: Yamashita, Takuro; Murooka, Takeshi
    Abstract: We consider an adverse selection environment between an informed seller and an uninformed buyer, where no trade occurs when all buyers are rational. The buyer may be a “behavioral” type in the sense that he may take actions different from a rational type. We show that, for any incentive-feasible mechanism with any non-trivial trade, the buyer’s ex-ante expected payoff is strictly negative. Our result implies that whenever trade occurs, some behavioral types must incur losses.
    Keywords: Adverse selection; Inferential naivety; Mechanism design; Behavioral contract theory; Consumer protection
    JEL: D82 D89 D90 D91
    Date: 2021–09–07
  20. By: Ring, Patrick; Probst, Catharina C.; Neyse, Levent; Wolff, Stephan; Kaernbach, Christian; van Eimeren, Thilo; Schmidt, Ulrich
    Abstract: Problem gamblers discount delayed rewards more rapidly than do non-gambling controls. Understanding this impulsivity is important for developing treatment options. In this article, we seek to make two contributions: First, we ask which of the currently debated economic models of intertemporal choice (exponential versus hyperbolic versus quasi-hyperbolic) provides the best description of gamblers’ discounting behavior. Second, we ask how problem gamblers differ from habitual gamblers and non-gambling controls within the most favored parametrization. Our analysis reveals that the quasi-hyperbolic discounting model is strongly favored over the other two parametrizations. Within the quasi-hyperbolic discounting model, problem gamblers have both a significantly stronger present bias and a smaller long-run discount factor, which suggests that gamblers’ impulsivity has two distinct sources.
    Keywords: time preferences,discounting,risk,incentives,gambling
    Date: 2021
  21. By: John Duffy; Janet Hua Jiang; Huan Xie
    Abstract: We study indefinitely-lived assets in experimental markets and find that the traded prices of these assets are on average about 40% of the risk neutral fundamental value. Neither uncertainty about the value of total dividend payments nor horizon uncertainty about the duration of trade can account for this low traded price, while the temporal resolution of payoff uncertainty plays a crucial role. We show that an Epstein and Zin (1989) recursive preference specification together with probability weighting can rationalize the low traded prices observed in our indefinite-horizon asset markets, while risk attitudes do not play such an important role. Nous étudions les actifs à durée de vie indéfinie sur des marchés expérimentaux et constatons que les prix négociés de ces actifs représentent en moyenne environ 40% de la valeur fondamentale neutre en termes de risque. Ni l'incertitude sur la valeur des paiements de dividendes totaux ni l'incertitude sur l'horizon de la durée des échanges ne peuvent expliquer ce faible prix négocié, alors que la résolution temporelle de l'incertitude sur les paiements joue un rôle crucial. Nous montrons qu'une spécification de préférence récursive d'Epstein et Zin (1989) associée à une pondération des probabilités peut rationaliser les faibles prix négociés observés sur nos marchés d'actifs à horizon indéfini, alors que les attitudes à l'égard du risque ne jouent pas un rôle aussi important.
    Keywords: asset pricing,behavioral finance,experiments,indefinite horizon,random termination,risk and uncertainty,Epstein-Zin recursive preferences,probability weighting, évaluation des actifs,finance comportementale,expériences,fin aléatoire,risque et incertitude,préférences récursives d'Epstein-Zin,pondération des probabilités,horizon indéfini
    JEL: C91 C92 D81 G12
    Date: 2021–09–09
  22. By: Bekaert, Els; Constant, Amelie F.; Foubert, Killian; Ruyssen, Ilse
    Abstract: Aspirations provide the underlying dynamics of the behavior of individuals whether they are realized or not. Knowledge about the characteristics and motives of those who aspire to leave the host country is key for both host and home countries to formulate appropriate and effective policies in order to keep their valued immigrants or citizens and foster their (re-)integration. Based on unique individual-level Gallup World Polls data, a random utility model, and a multinomial logit we model the aspirations or stated preferences of immigrants across 138 countries worldwide. Our analysis reveals selection in characteristics, a strong role for soft factors like social ties and sociocultural integration, and a faint role for economic factors. Changes in circumstances in the home and host countries are also important determinants of aspirations. Results differ by the host countries' level of economic development.
    Keywords: Economics of Immigrants,Geographic Labor Mobility,Public Policy,Micro-economic Behavior,Underlying Principles,International Migration,Large Data Sets,Modeling and Analysis
    JEL: J15 J61 J68 D01 F22 C55
    Date: 2021
  23. By: Michelle Baddeley (University of Technology Sydney); Geoff Harcourt
    Abstract: Sub-optimal levels of investment in fixed capital are a pressing problem for modern economics. Behavioural economics provides some potential explanations, but behavioural economic insights are not commonly incorporated into standard capital investment models which capture neither the diversity of investment appraisal techniques used in practice, nor the range of decision-making styles used by real-world businesses. In filling these gaps, this paper brings together insights from capital investment theory with insights from behavioural economics to develop a behavioural economic model of investment appraisal, allowing for boundedly-rational investment decision-making. This model is applied in a macroeconomic analysis to show how the misapplication of investment appraisal criteria, especially under conditions of endemic uncertainty, is associated with sub-optimal levels of macroeconomic investment - with negative macroeconomic implications in terms of production, employment, productivity, wages and cyclical volatility.
    Keywords: investment; heuristics; bias; behavioural macroeconomics
    JEL: E29 E70 D22 D25 M21
    Date: 2021–08–01
  24. By: Ludmila Matysková; Alfonso Montes
    Abstract: A sender choosing a signal to be disclosed to a receiver can often in fluence the receiver's actions. Is persuasion harder when the receiver has additional information sources? Does the receiver benefit from having them? We extend Bayesian persuasion to a receiver's acquisition of costly information. The game can be solved as a standard Bayesian persuasion under an additional constraint - the receiver never learns. The `threat' of learning hurts the sender. However, the outcome can also be worse for the receiver, in which case the receiver's possibility to gather additional information decreases social welfare. Furthermore, we propose a new solution method that does not rely directly on concavification, which is also applicable to standard Bayesian persuasion.
    Keywords: Bayesian persuasion, Rational inattention, Costly information acquisition, Information design
    JEL: D72 D81 D82 D83
    Date: 2021–04
  25. By: Adam Jonsson
    Abstract: The locations problem in infinite ethics concerns the relative moral status of different categories of potential bearers of value, the primary examples of which are people and points in time. The challenge is to determine which category of value bearers are of ultimate moral significance: the ultimate locations, for short. This paper defends the view that the ultimate locations are 'people at times'. A person at a time is not a specific person, but the person born at a specific point in time (de dicto). The main conclusion of the paper is that the unsettling implications of the time- and person-centered approaches to infinite ethics can be avoided by taking people at times as the ultimate locations. Most notably, a broad class of worlds that are incomparable using the person-centered approach can be strictly ranked.
    Date: 2021–09

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