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on Utility Models and Prospect Theory |
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Issue of 2022‒02‒07
fourteen papers chosen by |
| By: | Mohammed Abdellaoui; Enrico Diecidue (INSEAD - Institut Européen d'administration des Affaires); Emmanuel Kemel; Ayse Onculer |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03507084&r= |
| By: | John F. -H. Quah; Gerelt Tserenjigmid |
| Abstract: | We explore heterogenous prices as a source of heterogenous or stochastic demand. Heterogenous prices could arise either because there is actual price variation among consumers or because consumers (mis)perceive prices differently. Our main result says the following: if heterogenous prices have a distribution among consumers that is (in a sense) stable across observations, then a model where consumers have a common utility function but face heterogenous prices has precisely the same implications as a heterogenous preference/random utility model (with no price heterogeneity). |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.03784&r= |
| By: | Anna Bogomolnaia (HSE St Petersburg - Higher School of Economics - St Petersburg, University of Glasgow, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Hervé Moulin (University of Glasgow); Fedor Sandomirskiy (HSE St Petersburg - Higher School of Economics - St Petersburg) |
| Abstract: | Ann likes oranges much more than apples; Bob likes apples much more than oranges. Tomorrow they will receive one fruit that will be an orange or an apple with equal probability. Giving one half to each agent is fair for each realization of the fruit. However, agreeing that whatever fruit appears will go to the agent who likes it more gives a higher expected utility to each agent and is fair in the average sense: in expectation, each agent prefers the allocation to the equal division of the fruit; that is, the agent gets a fair share. We turn this familiar observation into an economic design problem: upon drawing a random object (the fruit), we learn the realized utility of each agent and can compare it to the mean of the agent's distribution of utilities; no other statistical information about the distribution is available. We fully characterize the division rules using only this sparse information in the most efficient possible way while giving everyone a fair share. Although the probability distribution of individual utilities is arbitrary and mostly unknown to the manager, these rules perform in the same range as the best rule when the manager has full access to this distribution. This paper was accepted by Ilia Tsetlin, behavioral economics and decision analysis. |
| Date: | 2021–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03507995&r= |
| By: | Kemper, Fynn; Wichardt, Philipp C. |
| Abstract: | This paper proposes a simple framework to model contextual influences on procedural decision making. In terms of utility, we differentiate between monetary payoffs and contextual psychological ones, e.g. deriving from the subjects' normative frame of reference. Monetary payoffs are treated as common knowledge while psychological payoffs are treated as partly unforeseeable. Regarding behaviour, we assume that players act optimal given their local perception of the game. As perceptions may be incorrect, we do not consider common equilibrium conditions but instead require strategies to be procedurally justifiable. As we will argue, various common inconsistencies considered in behavioural economics can be understood as procedurally justifiable behaviour. With the present framework, we add an abstract tool to the discussion which allows to consider also the behavioural implications of players foreseeing the corresponding behavioural effects̶ which is often not considered in the respective original models. |
| Keywords: | behavioural inconsistencies,context effects,limited foresight,procedural decision making,utility |
| JEL: | C70 D01 D91 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2202&r= |
| By: | Farshad Noravesh; Kristiaan Kerstens |
| Abstract: | In this paper, different approaches to portfolio optimization having higher moments such as skewness and kurtosis are classified so that the reader can observe different paradigms and approaches in this field of research which is essential for practitioners in Hedge Funds in particular. Several methods based on different paradigms such as utility approach and multi-objective optimization are reviewed and the advantage and disadvantageous of these ideas are explained. Keywords: multi-objective optimization, portfolio optimization, scalarization, utility |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.00205&r= |
| By: | Maniquet, François (Université catholique de Louvain, LIDAM/CORE, Belgium) |
| Abstract: | Poverty measurement based on income or consumption fails to be consistent with welfare: a higher utility (that is, preference satisfaction) of an individual may go together with an increase in the contribution of this individual to poverty. The equivalence approach, which consists of computing the money needed to maintain a given level of utility, is the way to adjust income poverty measurement so that it becomes consistent with welfare. We review four equivalence approaches, and we compare the properties that each approach satisfies or fails to satisfy. Poverty measurement based on deprivation measures, on the other hand, cannot be adjusted to become consistent with welfare. We discuss how weights and deprivation thresholds can be designed in order to decrease the discrepancy between poverty and welfare in deprivation measures. |
| Keywords: | Multidimensional poverty measurement ; preferences ; equivalent income ; distance function ; welfare ratio ; counting approach |
| JEL: | D63 I32 |
| Date: | 2021–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2021021&r= |
| By: | Bart Capéau; Liebrecht De Sadeleer |
| Abstract: | Empirical welfare analyses often impose stringent parametric assumptions on individuals' preferences and neglect unobserved preference heterogeneity. In this paper, we develop a framework to conduct individual and social welfare analysis for discrete choice that does not suffer from these drawbacks. We first adapt the class of individual welfare measures introduced by Fleurbaey (2009) to settings where individual choice is discrete. Allowing for unrestricted, unobserved preference heterogeneity, these measures become random variables. We then show that the distribution of these objects can be derived from choice probabilities, which can be estimated nonparametrically from cross-sectional data. In addition, we derive nonparametric results for the joint distribution of welfare and welfare differences, as well as for social welfare. The former is an important tool in determining whether the winners of a price change belong disproportionately to those groups who were initially well-off. An empirical illustration demonstrates the relevance of the methods and the importance of considering welfare instead of income. |
| Keywords: | discrete choice, nonparametric welfare analysis, individual welfare, social welfare, money metric utility, compensating variation, equivalent variation |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/338552&r= |
| By: | Sarantis Tsiaplias (Melbourne Institute: Applied Economic & Social Research, the University of Melbourne); Qi Zeng (Department of Finance, the University of Melbourne); Guay Lim (Melbourne Institute: Applied Economic & Social Research, the University of Melbourne) |
| Abstract: | Using a novel quarterly survey of 23 thousand Australian retail equity investors spanning eight years, we study the relationship between investor beliefs and their trading preferences. We provide evidence that, consistent with Mean-Variance preferences, both lower returns and higher volatility increase the marginal propensity to sell. Furthermore, we find that while demographic characteristics and investment experiences are predictive of the holding preferences of retail investors, they are uninformative about their trading directional preferences (i.e. whether to buy or sell). Our findings suggest that a representative-agent portfolio model with Mean-Variance preferences is sufficient to explain the trading directional preferences of retail investors, but not their holding patterns. |
| Keywords: | investor expectiations, shareholder surveys, trading preferences, Mean-Variance utility. |
| JEL: | G11 G40 C35 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2021n27&r= |
| By: | Christos Koulovatianos; Carsten Schröder |
| Abstract: | Equivalence Scales are a tool for removing the heterogeneity of household sizes in the measurement of inequality, and affect poverty assessments and poverty lines. We address the disadvantage that poor households may suffer due to their reduced ability to share goods within the household. This disadvantage is important to estimate and embed in standard analysis, as it seems to have a substantial quantitative impact on the measurement of poverty. We also suggest that future research on the role of subsistence incomes of different household types in utility functions may shed light on explanations for poverty and may guide anti-poverty policies. |
| Keywords: | Equivalent incomes, household-size economies, inequality, demographics and poverty, child costs, Generalized Equivalence Scale Exactness |
| JEL: | I32 D14 D63 D15 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1991&r= |
| By: | Susanne Elsas |
| Abstract: | Usually, it is expected that income increases life satisfaction. In recent years tough, research emerged that shows how subjective well-being, including satisfaction, influences objective measures, as for example income. This would then require explicit identification strategies for estimating effects of income on life satisfaction. I address this issue using German SOEP data and Lewbel’s (2012) method, which generates instruments from heteroscedasticity. This allows identification of two separate causal effects in the link between income and life satisfaction: (1) income affecting satisfaction and (2) satisfaction affecting income. This analysis focuses on life satisfaction and equivalized income, because this is the income measure most welfare analyses use to assess utility of income. Results show no significant effects of income on life satisfaction, but effects of satisfaction on income. This suggest that the effect of income on life satisfaction may be overstated in standard approaches that do not account for this reverse causality – possibly due to reverse causality, which is likely rooted in response behavior, rather than income generation. |
| Keywords: | Life satisfaction, income satisfaction, income, utility of income, reverse causality, instrumental variable estimation, internal instruments, lewbel instruments |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp1143&r= |
| By: | Douadia Bougherara (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - 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); Pierre Courtois (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - 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); Maia David (ECO-PUB - Economie Publique - INRA - Institut National de la Recherche Agronomique - AgroParisTech); Joakim Weill (UC Davis - University of California [Davis] - University of California) |
| Abstract: | If individuals have spatially dierentiated preferences for sites or areas im- 8 pacted by an invasive alien species, eective management must take this 9 heterogeneity into account and target sites or areas accordingly. In this 10 paper, we estimate spatially dierentiated preferences for the management 11 of primrose willow (Ludwigia grandiora), an invasive weed spreading in a 12 French regional park. We use an original spatially explicit discrete choice 13 experiment to evaluate individuals' willingness to pay (WTP) to control the 14 invasion in dierent areas of the regional park. Our results indicate that 15 WTP for management highly depends on the area considered, with areas 16 where it is three times higher than others. We analyze the main factors 17 explaining the heterogeneity of preferences and show that the closer respo n-18 dents live to the park, the more they visit and/or practice activities in it, the 19 higher their WTP and spatial preferences. Park residents and regular users 20 have highWTP and unambiguous preferences for targeting control to specic 21 areas. Non-residents and occasional users have much lower WTP and more 22 homogeneous spatial preferences. These results suggest that implementing 23 management strategies that spatially target invasion control according to 24 public preferences is likely to produce signicant utility gains. These gains 25 are all the more important as the preferences taken into account are those of the stakeholders directly concerned by the invasion, the residents and reg-27 ular park users. Ignoring these spatial preferences will lead to sub-optimal 28 invasion management. |
| Keywords: | Public preferences.,Discrete choice experiments,Spatial heterogeneity,Cost assess- 30 ment,Primrose willow,Invasive weed |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03476692&r= |
| By: | Poekert, Philip E. (University of Florida); Swaffield, Sue (University of Cambridge); Demir, Ema K. (University of Cambridge); Wright, Sage A. (University of Florida) |
| Abstract: | This systematic review of recent research explored the uncharted intersection of literature on educational leadership, professional learning, and educational equity. It investigated leadership approaches to shaping the professional development and on-going learning of educators that supports more equitable outcomes for students. The underlying motivation for the work is our concern for the educational experiences and achievements of marginalised students, and for professional learning to address these inequalities. Guided by the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) Statement, and iterative selection of literature based on relevance and quality judged by weight of evidence assessments, we identified 41 empirical items for detailed analysis. The outcome was five themes: Critical framing of social justice issues; Dialogue and enquiry; Learning and identity development; Context, resources, and motivations; Normalising inclusion and shared leadership. A further six articles informed a conceptual framework linking professional learning and outcomes that developed existing models. Critique of linear conceptualisations of learning, and affinity with the values and philosophy of the process model of education championed by Lawrence Stenhouse, prompted proposing the themes as nascent principles. These require further research, yet they have immediate practical utility for educational leaders and teachers working in pursuit of educational equity. |
| Keywords: | Professional Learning; Leadership; Educational Equity; Review of Research |
| Date: | 2022–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhb:hastel:2021_005&r= |
| By: | Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | We consider risk sharing among individuals in a one-period setting under uncertainty, that will result in payoffs to be shared among the members. We start with optimal risk sharing in an Arrow-Debreu economy, or equivalently, in a Borch-style reinsurance market. From the results of this model we can infer how risk is optimally distributed between individuals according to their preferences and initial endow ments, under some idealized conditions. A main message in this theory is the mutuality principle, of interest related to the economic effects of pandemics. From this we point out some elements of a more gen eral theory of syndicates, where in addition, the group of people is to make a common decision under uncertainty. We extend to a compet itive market as a special case of such a syndicate. |
| Keywords: | Optimal risk sharing; Syndicates; Savage expected utility; Evaluation measures; No-arbitrage pricing; State prices |
| JEL: | D51 D53 D90 E21 G10 G12 |
| Date: | 2021–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2021_010&r= |
| By: | Francisco J. Bariffi (University Carlos III of Madrid, Spain); Julia M. Puaschunder (The New School, Department of Economics, School of Public Engagement, USA) |
| Abstract: | The view that the COVID-19 pandemic has set in motion profound changes in our modern societies is practically unanimous. The global effort to contain, cure, and eradicate COVID-19 has been greatly benefited by the use, development and/or adaptation of technological tools for mass surveillance based on artificial intelligence and robotics systems. The management of the COVID-19 pandemic yet has also revealed many shortcomings generated from the need to make decisions “in extremis†. Systematic lockdowns of entire populations pushed humans to increase exposure to digital devices in order to achieve some sort of social connection. Some nations with the capable technology development used AI systems to access individual digital data in order to control and contain the SARS-CoV-2. Massive surveillance of entire populations is now possible. In this way, the problem arises of how to establish an adequate balance and control between the utility and the results offered by mass surveillance systems based on artificial intelligence and robotics in the fight against COVID-19 on the one hand, and the protection of personal and collective fundamental rights and freedoms, on the other. |
| Keywords: | Artificial Intelligence, AI, Anti-Discrimination, Big Data, COVID-19, COVID Long Haulers, Democratization of Healthcare Information, Digitalization, Healthcare, Human Rights, Massive Surveillance, Prevention, Tracking |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:smo:lpaper:0115&r= |