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on Utility Models and Prospect Theory |
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Issue of 2021‒10‒11
eight papers chosen by |
| By: | Mohajan, Haradhan |
| Abstract: | A consumer is considered as a person or a group of people who uses purchased goods, products, or services only for personal use, and not for manufacturing or resale. Consumers usually purchase valuable and useful commodities or goods by spending all or partial of their income. The property of a commodity that enables it to satisfy human wants is called utility. Producers must be conscious to increase the utility among the consumers. This study has considered the maximization of utility problem of consumers of Bangladesh subject to two constraints; namely, budget constraint and coupon constraint. Consequently, in the study two Lagrange multipliers are used and interpreted these with mathematical analysis. Prediction of consumer behavior will help both producers and consumers to take decision of their future economic productions and consumptions, respectively. This article is ornamented with sufficient theorems and economic analyses. So that all the readers find interest when go through the economic analysis of utility maximization. |
| Keywords: | Consumer satisfaction, Lagrange multipliers, utility maximization |
| JEL: | C3 C61 C67 O1 |
| Date: | 2021–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109993&r= |
| By: | Heiko Karle; Heiner Schumacher; Rune Vølund |
| Abstract: | We consider the Salop (1979) model of product differentiation and assume that consumers are uncertain about the qualities and prices of firms’ products. They can inspect all products at zero cost. A share of consumers is expectation-based loss averse. For these consumers, a purchase plan, which involves buying products of varying quality and price with positive probability, creates disutility from gain-loss sensations. Even at modest degrees of loss aversion they may refrain from inspecting all products and choose an individual default that is strictly dominated in terms of surplus. Firms’ strategic behavior exacerbates the scope for this effect. The model generates “scale-dependent psychological switching costs” that increase in the value of the transaction. We find empirical evidence for the predicted association between switching behavior and loss aversion in new survey data. |
| Keywords: | switching costs, competition, loss aversion |
| JEL: | D21 D83 L41 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9313&r= |
| By: | Martin M. Andreasen (Aarhus University, CREATES, and the Danish Finance Institute.); Giovanni Caggiano (Monash University and University of Padova.); Efrem Castelnuovo (University of Padova.); Giovanni Pellegrino (Aarhus University) |
| Abstract: | This paper uses a nonlinear vector autoregression and a non-recursive identification strategy to show that an equal-sized uncertainty shock generates a larger contraction in real activity when growth is low (as in recessions) than when growth is high (as in expansions). An estimated New Keynesian model with recursive preferences and approximated to third order around its risky steady state replicates these state-dependent responses. The key mechanism behind this result is that firms display a stronger upward nominal pricing bias in recessions than in expansions, because recessions imply higher inflation volatility and higher marginal utility of consumption than expansions. |
| Keywords: | New Keynesian Model, Nonlinear SVAR, Non-recursive identification, State-dependent uncertainty shock, Risky steady state. |
| JEL: | E32 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2021-11&r= |
| By: | Sandro Ambuehl; B. Douglas Bernheim |
| Abstract: | We investigate how individuals think groups should aggregate members’ ordinal preferences -that is, how they interpret “the will of the people.” In an experiment, we elicit revealed attitudes toward ordinal preference aggregation and classify subjects according to the rules they apparently deploy. Majoritarianism is rare. Instead, people employ rules that place greater weight on compromise options. The classification’s fit is excellent, and clustering analysis reveals that it does not omit important rules. We ask whether rules are stable across domains, whether people impute cardinal utility from ordinal ranks, and whether attitudes toward aggregation differ across countries with divergent traditions. |
| Keywords: | preference aggregation, experiment, social welfare analysis |
| JEL: | C91 D71 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9317&r= |
| By: | Elena del Mercato (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, UP1 - Université Paris 1 Panthéon-Sorbonne); Van-Quy Nguyen (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne) |
| Abstract: | We consider a pure exchange economy with consumption externalities in preferences. Using the notion of competitive equilibriumà la Nash, we point out that a simple condition for restoring the Second Welfare Theorem is that the set of Pareto optimal allocations is included in that of internal Pareto optimal allocations. We provide the Social Redistribution assumption to ensure such inclusion. This assumption is weaker than other relevant assumptions that have been studied in the literature. We then introduce the differential counterpart of Social Redistribution, called Directional Social Redistribution. This assumption entails an interesting consequence that relates social marginal utilities and supporting prices at a Pareto optimal allocation. Finally, we show that, for Bergson-Samuelson utility functions, Directional Social Redistribution is ensured by a specific property of the Jacobian matrix, which has a natural interpretation in terms of externalities. |
| Keywords: | Other-regarding preferences,Competitive equilibrium à la Nash,second welfare theorem,social redistribution |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03354304&r= |
| By: | Ernesto Mesa-Vazquez (Universidad de Valencia, ERICES); Ismael Rodriguez-Lara (Department of Economics, Universidad de Granada & Economic Science Institute (ESI), Chapman University); Amparo Urbano (Universidad de Valencia, ERICES) |
| Abstract: | We show that generosity is affected when we vary the level of role uncertainty, i.e., the probability that the dictator’s decision will be implemented. We also show that framing matters for generosity in that subjects are less generous when they are told that their choices will be implemented with a certain probability, compared with a setting in which they are told that their choices will not be implemented with certain probability. |
| Keywords: | dictator games, generosity, role uncertainty, framing effects |
| JEL: | C91 D3 D6 D81 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:21-17&r= |
| By: | Antoinette Baujard (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, 42023 Saint-Etienne, France) |
| Abstract: | This paper is a book review of Matthew Adler's bool "Measuring Social Welfare: An Introduction", published at OUP in 2019. The book is an introduction to the social welfare function approach, meant to assess social welfare and help public decision making, as a comprehensive and welcome alternative to cost-benefit analysis. The review first provides a number of references to situate the contribution of the book in the literature. Secondly, it insists on the fact that the social welfare approach is able to express transparently normative criteria, by contrast with CBA. Thirdly, it highlights that, after the focus on efficiency, the book well illustrates how to incorporate wider distributive criteria; it also enables to encompass different kinds of public policies beyond fiscal redistribution. Fourthly, it regrets that the book does not yet illustrate how to cope with the diversity of values and relevant information beyond utility and income, however introduced as theoretically possible. |
| Keywords: | Welfare economics, social welfare function, social welfare approach, efficiency, distribution |
| JEL: | D63 I30 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:2113&r= |
| By: | Aj Bostian (University of Tampere - University of Tampere); Christoph Heinzel (SMART-LERECO - Structures et Marché Agricoles, Ressources et Territoires - AGROCAMPUS OUEST - 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: | Participants in an experiment can engage in unobservable asset integration, mentally incorporating their own non-experimental "field" resources into an otherwise controlled scenario. This paper extends asset integration to include intertemporal tradeoffs like consumption smoothing. A model of "lifecycle asset integration" shows that exogenous and endogenous field resources cause different interference patterns. Exogenous resources cannot be affected by the experiment, and so their interference can be controlled by accounting for their level. Endogenous resources, by contrast, are highly substitutable with the experiment, and their interference can be controlled only by modeling the entire experiment-field interaction. The model's practical implications are investigated in the context of three classic laboratory experiments on risk and time: one static (Holt and Laury, 2002) and two dynamic (Andersen et al., 2008; Andreoni and Sprenger, 2012). As interference worsens, decisions in these tasks tend to exhibit a kind of attenuation bias toward less risk aversion and more patience. Interference occurs reliably when field resources are on household scales, but amounts on the scale of pocket change can also cause problems. |
| Keywords: | Discount rate,Asset integration,Experiment,Consumption smoothing,Risk aversion |
| Date: | 2020–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03358995&r= |