nep-upt New Economics Papers
on Utility Models and Prospect Theory
Issue of 2022‒01‒10
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Yogurts Choose Consumers? Estimation of Random-Utility Models via Two-Sided Matching By Odran Bonnet; Alfred Galichon; Yu-Wei Hsieh; Keith O'Hara; Matt Shum
  2. Portfolio Choice with Time Horizon Risk By Alexis DIRER
  3. Markovian Persuasion By Ehud Lehrer; Dimitry Shaiderman
  4. The Importance of Matching Effects for Labor Productivity: Evidence from Teacher-Student Interactions By Tom Ahn; Esteban Aucejo; Jonathan James
  5. Capital Return Jumps and Wealth Distribution By Jess Benhabib; Wei Cui; Jianjun Miao
  6. Choice Determinants of a Smart Contract vs. Ambiguous Expert-Based Insurance: An Experiment By Giuseppe Attanasi; Marta Ballatore; Michela Chessa; Agnès Festré; Chris Ouangraoua
  7. Economics as a Normative Discipline: Value Disentanglement in an 'Objective' Economics By Davis, John B.

  1. By: Odran Bonnet; Alfred Galichon; Yu-Wei Hsieh; Keith O'Hara; Matt Shum
    Abstract: The problem of demand inversion - a crucial step in the estimation of random utility discrete-choice models - is equivalent to the determination of stable outcomes in two-sided matching models. This equivalence applies to random utility models that are not necessarily additive, smooth, nor even invertible. Based on this equivalence, algorithms for the determination of stable matchings provide effective computational methods for estimating these models. For non-invertible models, the identified set of utility vectors is a lattice, and the matching algorithms recover sharp upper and lower bounds on the utilities. Our matching approach facilitates estimation of models that were previously difficult to estimate, such as the pure characteristics model. An empirical application to voting data from the 1999 European Parliament elections illustrates the good performance of our matching-based demand inversion algorithms in practice.
    Date: 2021–11
  2. By: Alexis DIRER
    Keywords: , portfolio choice, risk aversion, timing risk
    Date: 2021
  3. By: Ehud Lehrer; Dimitry Shaiderman
    Abstract: In the classical Bayesian persuasion model an informed player and an uninformed one engage in a static interaction. The informed player, the sender, knows the state of nature, while the uninformed one, the receiver, does not. The informed player partially shares his private information with the receiver and the latter then, based on her belief about the state, takes an action. This action determines, together with the state of nature, the utility of both players. We consider a dynamic Bayesian persuasion situation where the state of nature evolves according to a Markovian law. In this repeated persuasion model an optimal disclosure strategy of the sender should, at any period, balance between getting high stage payoff and future implications on the receivers' beliefs. We discuss optimal strategies under different discount factors and characterize when the asymptotic value achieves the maximal value possible.
    Date: 2021–11
  4. By: Tom Ahn (Graduate School Defense Management, Naval Postgraduate School.); Esteban Aucejo (Department of Economics, Arizona State University); Jonathan James (Department of Economics, California Polytechnic State University)
    Abstract: We examine matching effects in worker productivity within the educational context by introducing a novel estimator for teacher value-added models that is more robust than previous estimators and is well-suited for multi-dimensional problems. Using this new framework, we show that teacher effectiveness is highly dependent on interaction effects between teachers and the individual characteristics of their students. For example, the difference in value-added between well and poorly-matched students for the median teacher is on the order of 0.1σ test score units. Moreover, matching effects are particularly salient for low-achieving students. The difference in teacher value-added between an effective and ineffective teacher in language arts for low-achieving students is twice as large as the di erence for high-achieving students. We also show that teacher rankings based on value-added are sensitive to classroom assignment due to match effects. To overcome this problem we propose an approach to rank teachers based on expected utility.
    Keywords: value-added, teacher, productivity, matching, multivariate shrinkage
    JEL: I21 I24 J21
    Date: 2021
  5. By: Jess Benhabib; Wei Cui; Jianjun Miao
    Abstract: The distributions of wealth in the US and many other countries are strikingly concentrated on the top and skewed to the right. To explain the income and wealth inequality, we provide a tractable heterogeneous-agent model with incomplete markets in continuous time. We separate illiquid capital assets from liquid bond assets and introduce capital return jump risks. Under recursive utility, we derive optimal consumption and wealth in closed form and show that the stationary wealth distribution has an exponential right tail. Our calibrated model can match the income and wealth distributions in the US data including the extreme right tail. We also study the effect of taxes on the distribution of wealth.
    JEL: C61 D83 E21 E22 E31
    Date: 2021–12
  6. By: Giuseppe Attanasi (Université Côte d'Azur, France; GREDEG CNRS); Marta Ballatore (GREDEG CNRS; Université Côte d'Azur, France); Michela Chessa (Université Côte d'Azur, France; GREDEG CNRS); Agnès Festré (GREDEG CNRS; Université Côte d'Azur, France; The Arctic University of Norway, Tromsø, Norway); Chris Ouangraoua (GREDEG CNRS; Université Côte d'Azur, France)
    Abstract: This study proposes an analysis of behavioral factors (attitudes toward risk, ambiguity and reduction of compound lotteries) as choice determinants of a blockchain-based car insurance smart contract (henceforth, BCT-based SC) vs. an ambiguous expert-based one. In a laboratory experiment, we develop a toy model representing such a choice and complement it with a questionnaire in order to collect data concerning participants’ demographics, personality traits, and car use experience. Our results can inform policies aimed at improving the understanding of BCT-based SC in the case of car insurance services. In particular, they advocate for designing ad hoc policies depending on user’s experience with cars.
    Keywords: Laboratory experiments, Blockchain, Smart contracts, Technology adoption, Risk, Ambiguity, Compound lottery
    JEL: C81 C83 C91 D81 D91
    Date: 2021–12
  7. By: Davis, John B. (Department of Economics Marquette University)
    Abstract: This chapter critically evaluates standard economics’ treatment of positive and normative, drawing on Putnam’s (2002) fact-value entanglement argument. It argues that economics is an inherently value-laden discipline but may still be an ‘objective’ one. The means of achieving this is to carry out a programme of value disentanglement that evaluates research approaches according to whether their different value structures are consistent. The method employed assumes that economics and social science disciplines are built around anchor values or normative ideals and additional sets of values concerning what most people in those disciplines see as most valuable and good about human society and characteristic of human nature from the perspective of their disciplines. Since the rise of neoclassicism, in economics the anchor value has been what I term an ‘individual realisation’ ideal. This normative ideal is coupled with values that interpret what individual well-being involves, based on additional values regarding what individuals are. The chapter evaluates the value structures of mainstream economics preferences/utility and the capability conceptions of individuals. The chapter concludes with discussion of different forms of interdisciplinarity and advances a general framework for ethics and economics in an ‘objective’ economics.
    Keywords: positive, normative, fact-value entanglement, individual realisation, capability, disciplinarity
    JEL: A13 B20 B41 B55
    Date: 2022–01

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