|
on Utility Models and Prospect Theory |
|
Issue of 2022‒03‒07
eighteen papers chosen by |
| By: | M\'ario S. Alvim; Konstantinos Chatzikokolakis; Yusuke Kawamoto; Catuscia Palamidessi |
| Abstract: | A common goal in the areas of secure information flow and privacy is to build effective defenses against unwanted leakage of information. To this end, one must be able to reason about potential attacks and their interplay with possible defenses. In this paper, we propose a game-theoretic framework to formalize strategies of attacker and defender in the context of information leakage, and provide a basis for developing optimal defense methods. A novelty of our games is that their utility is given by information leakage, which in some cases may behave in a non-linear way. This causes a significant deviation from classic game theory, in which utility functions are linear with respect to players' strategies. Hence, a key contribution of this paper is the establishment of the foundations of information leakage games. We consider two kinds of games, depending on the notion of leakage considered. The first kind, the QIF-games, is tailored for the theory of quantitative information flow (QIF). The second one, the DP-games, corresponds to differential privacy (DP). |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2012.12060&r= |
| By: | Joseph Y. Halpern; Yuval Heller; Eyal Winter |
| Abstract: | We study the strategic advantages of coarsening one's utility by clustering nearby payoffs together (i.e., classifying them the same way). Our solution concept, coarse-utility equilibrium (CUE) requires that (1) each player maximizes her coarse utility, given the opponent's strategy, and (2) the classifications form best replies to one another. We characterize CUEs in various games. In particular, we show that there is a qualitative difference between CUEs in which only one of the players clusters payoffs, and those in which all players cluster their payoffs, and that the latter type induce players to treat co-players better than in Nash equilibria in the large class of games with monotone externalities. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.10141&r= |
| By: | Emerson Melo (Indiana University, Bloomington) |
| Abstract: | This paper studies the Random Utility Model (RUM) in environments where the decision maker is imperfectly informed about the payoffs associated to each of the alternatives he faces. By embedding the RUM into an online decision problem, we make four contributions. First, we propose a gradient-based learning algorithm and show that a large class of RUMs are Hannan consistent (Hannan [1957]); that is, the average difference between the expected payoffs generated by a RUM and that of the best fixed policy in hindsight goes to zero as the number of periods increase. Second, we show that the class of Generalized Extreme Value (GEV) models can be implemented with our learning algorithm. Examples in the GEV class include the Nested Logit, Ordered, and Product Differentiation models among many others. Third, we show that our gradient-based algorithm is the dual, in a convex analysis sense, of the Follow the Regularized Leader (FTRL) algorithm, which is widely used in the Machine Learning literature. Finally, we discuss how our approach can incorporate recency bias and be used to implement prediction markets in general environments.javascript:void(0); |
| Keywords: | Random utility models, Multinomial Logit Model, Generalized Nested Logit models, GEV class, Online optimization, Online learning, Hannan consistency, no-regret learning |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2022003&r= |
| By: | D. Choudhury; S. Borkotokey; Rajnish Kumar; Sudipta Sarangi |
| Abstract: | In cooperative games with transferable utilities, the Shapley value is an extreme case of marginalism while the Equal Division rule is an extreme case of egalitarianism. The Shapley value does not assign anything to the non-productive players and the Equal Division rule does not concern itself to the relative efficiency of the players in generating a resource. However, in real life situations neither of them is a good fit for the fair distribution of resources as the society is neither devoid of solidarity nor it can be indifferent to rewarding the relatively more productive players. Thus a trade-off between these two extreme cases has caught attention from many researchers. In this paper, we obtain a new value for cooperative games with transferable utilities that adopts egalitarianism in smaller coalitions on one hand and on the other hand takes care of the players' marginal productivity in sufficiently large coalitions. Our value is identical with the Shapley value on one extreme and the Equal Division rule on the other extreme. We provide four characterizations of the value using variants of standard axioms in the literature. We have also developed a strategic implementation mechanism of our value in sub-game perfect Nash equilibrium. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.09182&r= |
| By: | Joel P. Flynn; Lawrence D. W. Schmidt; Alexis Akira Toda |
| Abstract: | We study a general class of consumption-savings problems with recursive preferences. We characterize the sign of the consumption response to arbitrary shocks in terms of the product of two sufficient statistics: the elasticity of intertemporal substitution between contemporaneous consumption and continuation utility (EIS), and the relative elasticity of the marginal value of wealth (REMV). Under homotheticity, the REMV always equals one, so the propensity of the agent to save or dis-save is always signed by the relationship of the EIS with unity. We apply our results to derive comparative statics in classical problems of portfolio allocation, consumption-savings with income risk, and entrepreneurial investment. Our results suggest empirical identification strategies for both the value of the EIS and its relationship with unity. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.10673&r= |
| By: | Jean-François Bonnefon; Augustin Landier; Parinitha R. Sastry; David Thesmar |
| Abstract: | We characterize investors’ moral preferences in a parsimonious experimental setting, where we auction stocks with various ethical features. We find strong evidence that investors seek to align their investments with their social values (“value alignment”), and find no evidence of behavior driven by the social impact of investment decisions (“impact-seeking preferences”). First, the willingness to pay for a stock is a linear function of corporate externalities, and is symmetric for positive or negative externalities. Second, whether charity transfers are contingent or independent on investors buying the auctioned stock does not affect their WTP. Our results are thus compatible with a utility model where non-pecuniary benefits of firms’ externalities only accrue through stock ownership, not through the actual impact of investment decisions. Finally, non-pecuniary preferences are linear and additive: willingness to pay for social externalities is proportional to the expected sum of charity transfers made by firms (even if some of these donations are negative). |
| JEL: | G11 G41 M14 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29647&r= |
| By: | Anay Mehrotra; Bary S. R. Pradelski; Nisheeth K. Vishnoi |
| Abstract: | In selection processes such as hiring, promotion, and college admissions, implicit bias toward socially-salient attributes such as race, gender, or sexual orientation of candidates is known to produce persistent inequality and reduce aggregate utility for the decision maker. Interventions such as the Rooney Rule and its generalizations, which require the decision maker to select at least a specified number of individuals from each affected group, have been proposed to mitigate the adverse effects of implicit bias in selection. Recent works have established that such lower-bound constraints can be very effective in improving aggregate utility in the case when each individual belongs to at most one affected group. However, in several settings, individuals may belong to multiple affected groups and, consequently, face more extreme implicit bias due to this intersectionality. We consider independently drawn utilities and show that, in the intersectional case, the aforementioned non-intersectional constraints can only recover part of the total utility achievable in the absence of implicit bias. On the other hand, we show that if one includes appropriate lower-bound constraints on the intersections, almost all the utility achievable in the absence of implicit bias can be recovered. Thus, intersectional constraints can offer a significant advantage over a reductionist dimension-by-dimension non-intersectional approach to reducing inequality. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.01661&r= |
| By: | Deniz Igan; Taehoon Kim; Antoine Levy |
| Abstract: | State-contingent debt instruments such as GDP-linked warrants have garnered attention as a potential tool to help debt-stressed economies smooth repayments over business cycles, yet very few studies of the empirical properties of these instruments exist. This paper develops a general framework to estimate the time-varying risk premium of a state-contingent sovereign debt instrument. Our estimation framework applied to GDP-linked warrants issued by Argentina, Greece, and Ukraine reveals three stylized facts: (i) the risk premium in state-contingent instruments is high and persistent; (ii) the risk premium exhibits a pro-cyclical pattern; and (iii) the liquidity premium is higher and more volatile than that for plain-vanilla government bonds issued by the same sovereign. We then present a model in which investors fear ambiguity and that can account for the cyclical properties of the risk premium. |
| Keywords: | state-contingent debt instruments, GDP-linked warrants, risk premia, procyclicality |
| JEL: | H63 G13 E44 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:988&r= |
| By: | Thompson, Jason; McClure, Roderick; Scott, Nick; Hellard, Margaret; Abeysuriya, Romesh; Vidinaarachichi, Rajith; Thwaites, John; Lazarus, Jeffrey; Michie, Susan (University College London); Bullen, Chris |
| Abstract: | The COVID-19 pandemic has brought the discipline of public health, infectious disease, and policy modeling squarely into the spotlight. Never before have decisions regarding public health measures and their impacts been such a topic of international deliberation from the level of individuals and communities through to global leaders. And nor previously have models – developed at rapid pace and often in the absence of complete information - been so central to the decision-making process. However, after more than 18 months of experience with pandemic modeling, policy-makers need to be more confident about which models will be most helpful to support them when taking public health decisions. We combine the authors’ collective international experience of modelling for and with Governments and policy-makers with prior research utilisation scholarship to describe a framework to assist both modelers and policy-makers consider the utility of models that may be available to them when faced with difficult public health and policy decisions. To illustrate these principles, a set of three independent but complementary modeling case-studies undertaken at the same time in NSW, Australia during that state’s unfolding second wave of COVID-19 infections is presented. |
| Date: | 2021–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:2duk5&r= |
| By: | Robin Benabid Jegaden (UP1 - Université Paris 1 Panthéon-Sorbonne); Jade Lemoine (ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique, UP1 - Université Paris 1 Panthéon-Sorbonne) |
| Abstract: | Income shocks to poorer households may lead parents to withdraw their children from school and enter the labour market when other risk control instruments are insufficient. These responses to short-term shocks can have longer-term consequences for the development of children's human capital. Using data from a household survey in Ethiopia, we examine the impact of rainfall shocks on medium-term human capital investment decisions. The results suggest that climate shocks significantly reduce investment in human capital. In this context, psychological mechanisms play an important role in the household decision-making process behind children's school drop-out. We argue that exposure to income shocks exacerbates the perception of investment in educational capital as relatively risky, all else being equal. The high prevalence of income shocks (natural experiments) or the perception of this prevalence aggravates households' risk aversion, by accentuating the concavity of their utility function. |
| Abstract: | Les chocs de revenus subis par les ménages les plus démunis peuvent inciter les parents à retirer leurs enfants de l'école pour les introduire sur le marché du travail, lorsque les autres instruments de maîtrise des risques sont insuffisants. Ces réponses aux chocs à court terme peuvent entraîner des conséquences à plus long terme sur le développement du capital humain des enfants. En utilisant des données issues d'une enquête ménages en Ethiopie, nous examinons l'impact des chocs pluviométriques sur les décisions d'investissement dans le capital humain à moyen terme. Les résultats suggèrent que les chocs climatiques réduisent significativement l'investissement dans le capital humain. Dans ce contexte, les mécanismes psychologiques jouent un rôle important dans le processus décisionnel des ménages à l'origine d'une déscolarisation des enfants. Nous avançons que l'exposition aux chocs de revenus exacerbe la perception de l'investissement dans le capital éducatif comme relativement risqué, toutes choses égales par ailleurs. La forte prévalence des chocs de revenu (expériences naturelles) ou le ressenti de cette prévalence aggrave l'aversion au risque des ménages, en accentuant la concavité de leur fonction d'utilité. |
| Keywords: | Chocs de revenu,Education des enfants,Marchés imparfaits,Facteurs cognitifs,Ethiopie rurale |
| Date: | 2021–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03527638&r= |
| By: | Burin Gumjudpai (NAS Mahidol University) |
| Abstract: | We propose concept of equation of state (EoS) effect structure in form of diagrams and rules. This concept helps justifying EoS status of an empirical relation. We apply the concept to closed system of consumers and we are able to formulate its EoS. According to the new concept, EoS are classified into three classes. Manifold space of thermodynamics formulation of demand-side economics is identified. Formal analogies of thermodynamics and economics consumers' system are made. New quantities such as total wealth, generalized utility and generalized consumer surplus are defined. Microeconomics' concept of consumer surplus is criticized and replaced with generalized consumer surplus. Smith's law of demand is included in our new paradigm as a specific case resembling isothermal process. Absolute zero temperature state resembles the nirvana state in Buddhism philosophy. Econometric modelling of consumers' EoS is proposed at last. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.07975&r= |
| By: | Yulin Liu; Luyao Zhang |
| Abstract: | Currently, there are no convincing proxies for the fundamentals of cryptocurrency assets. We propose a new market-to-fundamental ratio, the price-to-utility (PU) ratio, utilizing unique blockchain accounting methods. We then proxy various fundamental-to-market ratios by Bitcoin historical data and find they have little predictive power for short-term bitcoin returns. However, PU ratio effectively predicts long-term bitcoin returns. We verify PU ratio valuation by unsupervised and supervised machine learning. The valuation method informs investment returns and predicts bull markets effectively. Finally, we present an automated trading strategy advised by the PU ratio that outperforms the conventional buy-and-hold and market-timing strategies. We distribute the trading algorithms as open-source software via Python Package Index for future research. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.12893&r= |
| By: | Pavel Ilinov; Ole Jann |
| Abstract: | We consider two types of models: (i) a rational inattention problem (as known from the literature) and (ii) a conformity game, in which fully informed players find it costly to deviate from average behavior. We show that these problems are equivalent to each other both from the perspective of the participant and the outside observer: Each individual faces identical trade-offs in both situations, and an observer would not be able to distinguish the two models from the choice data they generate. We also establish when individual behavior in the conformity game maximizes welfare. |
| Keywords: | conformity; equivalence; rational inattention; social norms; |
| JEL: | D81 D83 D91 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp719&r= |
| By: | Daniel F. Garrett (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Renato Gomes (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Lucas Maestri (FGV-EPGE - Universidad de Brazil) |
| Abstract: | We study competition by firms that simultaneously post (potentially nonlinear) taris to consumers who are privately informed about their tastes. Market power stems from informational frictions, in that consumers are heterogeneously informed about firms' oers. In the absence of regulation, all firms oer quantity discounts. As a result, relative to Bertrand pricing, imperfect competition benefits disproportionately more consumers whose willingness to pay is high, rather than low. Regulation imposing linear pricing hurts the former but benefits the latter consumers. While consumer surplus increases, firms' profits decrease, enough to drive down utilitarian welfare. By contrast, improvements in market transparency increase utilitarian welfare, and achieve similar gains on consumer surplus as imposing linear pricing, although with limited distributive impact. On normative grounds, our analysis suggests that banning price discrimination is warranted only if its distributive benefits have a weight on the societal objective. |
| Keywords: | Asymmetric information,Informational frictions,Linear pricing,Nonlinear pricing,Oligopoly |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03515749&r= |
| By: | Dietzenbacher, Bas (RS: GSBE other - not theme-related research, QE Math. Economics & Game Theory); Yanovskaya, Elena |
| Abstract: | This paper introduces and studies the equal split-off set for cooperative games with nontransferable utility. We illustrate the new solution for the famous Roth-Shafer examples and present two axiomatic characterizations based on different consistency properties on the class of exact partition games, i.e. the class of games where it intersects the core. Moreover, we provide explicit expressions for the class of bargaining problems and the class of bankruptcy problems. |
| JEL: | C71 |
| Date: | 2022–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2022002&r= |
| By: | Abeer Al Yaqoobi; Marcel Ausloos |
| Abstract: | This paper investigates the impact of Social Discount Rate (SDR) choice on intergenerational equity issues caused by Public-Private Partnerships (PPPs) projects. Indeed, more PPPs mean more debt being accumulated for future generations leading to a fiscal deficit crisis. The paper draws on how the SDR level taken today distributes societies on the Social Welfare Function (SWF). This is done by answering two sub-questions: (i) What is the risk of PPPs debts being off-balance sheet? (ii) How do public policies, based on the envisaged SDR, position society within different ethical perspectives? The answers are obtained from a discussion of the different SDRs (applied in the UK for examples) according to the merits of the pertinent ethical theories, namely libertarian, egalitarian, utilitarian and Rawlsian. We find that public policymakers can manipulate the SDR to make PPPs looking like a better option than the traditional financing form. However, this antagonises the Value for Money principle. We also point out that public policy is not harmonised with ethical theories. We find that at present (in the UK), the SDR is somewhere between weighted utilitarian and Rawlsian societies in the trade-off curve. Alas, our study finds no evidence that the (UK) government is using a sophisticated system to keep pace with the accumulated off-balance sheet debts. Thus, the exact prediction of the final state is hardly made because of the uncertainty factor. We conclude that our study hopefully provides a good analytical framework for policymakers in order to draw on the merits of ethical theories before initiating public policies like PPPs. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.09064&r= |
| By: | David W. Berger; Kyle F. Herkenhoff; Simon Mongey |
| Abstract: | It has long been argued that a minimum wage could alleviate efficiency losses from monopsony power. In a general equilibrium framework that quantitatively replicates results from recent empirical studies, we find higher minimum wages can improve welfare, but most welfare gains stem from redistribution rather than efficiency. Our model features oligopsonistic labor markets with heterogeneous workers and firms and yields analytical expressions that characterize the mechanisms by which minimum wages can improve efficiency, and how these deteriorate at higher minimum wages. We provide a method to separate welfare gains into two channels: efficiency and redistribution. Under both channels and Utilitarian social welfare weights the optimal minimum wage is $15, but alternative weights can rationalize anything from $0 to $31. Under only the efficiency channel, the optimal minimum wage is narrowly around $8, robust to social welfare weights, and generates small welfare gains that recover only 2 percent of the efficiency losses from monopsony power. |
| JEL: | E2 J2 J42 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29662&r= |
| By: | Benabid Jegaden, Robin (Embassy of France in Uganda); Lemoine, Jade |
| Abstract: | Les chocs de revenus subis par les ménages les plus démunis peuvent inciter les parents à retirer leurs enfants de l'école pour les introduire sur le marché du travail, lorsque les autres instruments de maîtrise des risques sont insuffisants. Ces réponses aux chocs à court terme peuvent entraîner des conséquences à plus long terme sur le développement du capital humain des enfants. En utilisant des données issues d’une enquête ménages en Ethiopie, nous examinons l’impact des chocs pluviométriques sur les décisions d’investissement dans le capital humain à moyen terme. Les résultats suggèrent que les chocs climatiques réduisent significativement l’investissement dans le capital humain. Dans ce contexte, les mécanismes psychologiques jouent un rôle important dans le processus décisionnel des ménages à l’origine d’une déscolarisation des enfants. Nous avançons que l’exposition aux chocs de revenus exacerbe la perception de l’investissement dans le capital éducatif comme relativement risqué, toutes choses égales par ailleurs. La forte prévalence des chocs de revenu (expériences naturelles) ou le ressenti de cette prévalence aggrave l’aversion au risque des ménages, en accentuant la concavité de leur fonction d’utilité. |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:3qrjv&r= |