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on Utility Models and Prospect Theory |
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Issue of 2022‒06‒20
twenty-one papers chosen by |
| By: | Takashi Hayashi (University of Glasgow); Ryoko Wada (Keiai University) |
| Abstract: | This paper experimentally studies comparative properties of risk aversion and ambiguity aversion in the way that the role of heterogeneity is allowed for. We examine correlation between the degrees of risk aversion and the degree of ambiguity aversion, how the latter changes across geometric properties of objective sets of possible probability distributions and how ambiguous information is generated. |
| Keywords: | Ambiguity aversion, risk aversion, comparative definitions, choice experiments |
| JEL: | C91 D81 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1079&r= |
| By: | Sproule, Robert; Karras, Michael |
| Abstract: | Both Weber (1997) and Sproule (2020) offered a precondition for the existence of Giffenity when the decision maker's utility function is the Wold-Juréen (1953) utility function. The purpose of this paper is to show that all preconditions (including those due to Weber (1997) and Sproule (2020)) are superfluous, in the present demonstration that the inferior good in the Wold-Juréen (1953) utility function is also a Giffen good. Our success relies upon our use of both of the Marshallian demand functions, rather than just one, as is the case in both Weber (1997) and Sproule (2020). In brief, the present paper offers a precondition-free demonstration that the Wold-Juréen (1953) utility function will (always) generate a Giffen good. |
| Keywords: | Slutsky decomposition, Giffen Good, Wold-Juréen (1953) utility function, pedagogy. |
| JEL: | A22 A23 D11 |
| Date: | 2022–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:113005&r= |
| By: | , Nurfadilah |
| Abstract: | utility atau nilai guna seing digunakan sebagai istilah untuk menjelaskan mengenai suatu manfaat barang atau komoditas tertentu. Pada teori keseimbangan, diketahui bahwa teori keseimbangan menggambarkan antara kesesuaian antara permintaan dan penawaran. |
| Date: | 2022–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:8tfn2&r= |
| By: | Najjar, Nadilah Anisah |
| Abstract: | Menurut Sukirno (1994) teori nilai guna (utility) adalah total kepuasan yang diperoleh ketika seseorang menggunakan suatu barang. Pengertian utility dalam analisis perilaku konsumen berarti manfaat yang dirasakan dari konsumsi suatu barang atau kepuasan yang diperoleh dari barang atau jasa tersebut dan dengan demikian juga penghargaan konsumen terhadapnya. Jadi utility juga merupakan suatu yang subyektif, tergantung pada pribadi yang melekat pada diri konsumen yaitu sejauh mana kebutuhannya terpenuhi dengan konsumsi barang/jasa tertentu (Gilarso, 2003). |
| Date: | 2022–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:9w328&r= |
| By: | Marcus Pivato (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université) |
| Abstract: | We consider a model of intertemporal choice where time is a continuum, the set of instantaneous outcomes (e.g., consumption bundles) is a topological space, and intertemporal plans (e.g., consumption streams) must be continuous functions of time. We assume that the agent can form preferences over plans defined on open time intervals. We axiomatically characterize the intertemporal preferences that admit a representation via discounted utility integrals. In this representation, the utility function is continuous and unique up to positive affine transformations, and the discount structure is represented by a unique Riemann–Stieltjes integral plus a unique linear functional measuring the long-run asymptotic utility. |
| Keywords: | Intertemporal choice,intergenerational social choice,technological feasibility,continuous utility,Stone-Čech compactification. |
| Date: | 2021–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03637876&r= |
| By: | Marcus Pivato (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université) |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03637879&r= |
| By: | Chao Wang (Indiana University, Department of Economics); Stefan Weiergraeber (Indiana University, Department of Economics); Ruli Xiao (Indiana University, Department of Economics) |
| Abstract: | We study the identification of dynamic discrete choice models with hyperbolic discounting using a terminating action. We provide novel identification results for both sophisticated and naive agents’ discount factors and their utilities in a finite horizon framework under the assumption of a stationary flow utility. In contrast to existing identification strategies we do not require to observe the final period for the sophisticated agent. Moreover, we avoid normalizing the flow utility of a reference action for both the sophisticated and the naive agent. We propose two simple estimators and show that they perform well in simulations. |
| Keywords: | hyperbolic discounting, dynamic discrete choice model, identification |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2022010&r= |
| By: | Daske, Thomas; March, Christoph |
| Abstract: | This study explores mechanism design with allocation-based social preferences. Agents' social preferences and private payoffs are all subject to asymmetric information. We assume quasi-linear utility and independent types. We show that the asymmetry of information about agents' social preferences can be operationalized to satisfy agents' participation constraints. Our main result is a possibility result for groups of at least three agents: If endowments are sufficiently large, any such group can resolve any given allocation problem with an ex-post budget-balanced mechanism that is Bayesian incentive-compatible, interim individually rational, and ex-post Pareto-efficient. |
| Keywords: | mechanism design,social preferences,Bayesian implementation,participation constraints |
| JEL: | C72 C78 D62 D82 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:254263&r= |
| By: | Waasi, Nur |
| Abstract: | Definisi kurva kepuasan sama (indifference curve): adalah kurva yang menghubungkan titik-titik kombinasi dari konsumsi (atau pembelian) barang-barang yang menghasilkan tingkat kepuasan yang sama. Indifference curve memperlihatkan semua kombinasi dari pilihan konsumen yang memberikan tingkat kepuasan atau utility yang sama bagi seseorang atau konsumen. |
| Date: | 2022–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:fcj7p&r= |
| By: | Najjar, Nadilah Anisah |
| Abstract: | Kurva kepuasan sama (indifference curve) adalah kurva yang menghubungkan titik-titik kombinasi dari konsumsi (atau pembelian) barang-barang yang menghasilkan tingkat kepuasan yang sama. Kurva kepuasan sama memperlihatkan semua kombinasi dari pilihan konsumen yang memberikan tingkat kepuasan atau utility yang sama bagi seseorang atau konsumen. |
| Date: | 2022–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:76zn4&r= |
| By: | Jean-Sébastien Lenfant (PRISM Sorbonne - Pôle de recherche interdisciplinaire en sciences du management - UP1 - Université Paris 1 Panthéon-Sorbonne) |
| Abstract: | Eugen Slutsky is well-known to any graduate student in economics for two landmark articles and two operational concepts bearing his name, one in the field of consumer and utility theory ("the Slutsky equation"), the other in the field of the theory of cycles, introducing autonomous and exogenous causes in the analysis of macroeconomic fluctuations ("the Slutsky-Yule effect"). Because of the historical and political circumstances he had to confront in Ukraine, and then in Russia and in the U.S.S.R. in the first half of 20th century, Slutsky was prevented from devoting himself fully to mathematical economics, and he only published a handful more of articles dealing with economics. Over the last twenty years, researchers in Europe, Ukraine and Russia have been involved in making his contributions to mathematics and economics better known. By now, we get a clearer picture of Slutsky's views on economics and we know his network of connections with Western scholars who contributed to draw attention to his work. This essay highlights Slutsky's lasting importance in economics, focusing on the fate of his major and lesser known works. |
| Keywords: | Slutsky equation,Economic cycles,Praxeology theory,Utility Theory |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03628273&r= |
| By: | Andreas Haupt; Aroon Narayanan |
| Abstract: | Consider a bandit learning environment. We demonstrate that popular learning algorithms such as Upper Confidence Band (UCB) and $\varepsilon$-Greedy exhibit risk aversion: when presented with two arms of the same expectation, but different variance, the algorithms tend to not choose the riskier, i.e. higher variance, arm. We prove that $\varepsilon$-Greedy chooses the risky arm with probability tending to $0$ when faced with a deterministic and a Rademacher-distributed arm. We show experimentally that UCB also shows risk-averse behavior, and that risk aversion is present persistently in early rounds of learning even if the riskier arm has a slightly higher expectation. We calibrate our model to a recommendation system and show that algorithmic risk aversion can decrease consumer surplus and increase homogeneity. We discuss several extensions to other bandit algorithms, reinforcement learning, and investigate the impacts of algorithmic risk aversion for decision theory. |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2205.04619&r= |
| By: | , Nurfadilla Nur Ali |
| Abstract: | Teori ekonomi dibangun melalui pendekatan investigasi realistik terhadap fenomena-fenomena ekonomi. Investigasi ini difokuskan untuk mencari bagaimana pola perilaku hubungan antar variabel ekonomi. Dengan pendekatan model ini, teori ekonomi kemudian menjadi cukup ampuh untuk diletakkan sebagai alat analisis. Teori ekonomi dapat dengan sangat baik menjelaskan bagaimana kegiatan ekonomi berjalan dan dengan akurat memprediksi apa yang akan terjadi pada satu variabel ekonomi jika variabel yang mempengaruhinya berubah. |
| Date: | 2022–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:ud6eg&r= |
| By: | Sproule, Robert; Karras, Michael |
| Abstract: | The Wold-Juréen (1953) functional form has proven to be invaluable to the development of consumer theory, and to the general search for utility functions which have the potential to yield a Giffen good. Because of this success, it seems only natural to ask about the value of Wold-Juréen (1953) functional form to the development of producer theory, and to the general quest for production functions which have the potential to yield a Giffen factor input. To date, this set of research questions remains unanswered, aside from one unenlightening comment by Weber (2001, page 622). The present paper answers these questions by offering a comprehensive analysis of the Wold�Juréen (1953) production function in the ongoing search for production functions which have the potential to yield a Giffen factor. |
| Keywords: | Slutsky decomposition, Giffen factor, Wold-Juréen (1953) production function, pedagogy. |
| JEL: | A22 A23 D21 |
| Date: | 2022–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:113007&r= |
| By: | Corina Boar (New York University); Matthew Knowles (University of Cologne) |
| Abstract: | We study optimal taxation in a model with endogenous financial frictions, risky investment and occupational choice, where the distribution of wealth across entrepreneurs affects how efficiently capital is used. The planner chooses linear taxes on wealth, capital and labor income to maximize the steady state utility of a newborn agent. Most agents in the model are poor, leading to a redistributive motive for taxation. Optimal tax rates can be written as a closed-form function of the size of the tax bases and their elasticities with respect to tax rates. We find that it is optimal to tax capital income because financial frictions reduce the elasticity of capital income with respect to taxes and because capital income taxes prevent excessive entry into entrepreneurship. Optimal wealth taxes are positive but close to zero, since they strongly discourage capital accumulation. |
| Keywords: | Entrepreneurship; Financial Frictions; Taxation |
| JEL: | E2 E6 H2 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:166&r= |
| By: | Hiroaki Shinkawa; Nicolas Chauvet; Guillaume Bachelier; Andr\'e R\"ohm; Ryoichi Horisaki; Makoto Naruse |
| Abstract: | We all have preferences when multiple choices are available. If we insist on satisfying our preferences only, we may suffer a loss due to conflicts with other people's identical selections. Such a case applies when the choice cannot be divided into multiple pieces due to the intrinsic nature of the resources. Former studies, such as the top trading cycle, examined how to conduct fair joint decision-making while avoiding decision conflicts from the perspective of game theory when multiple players have their own deterministic preference profiles. However, in reality, probabilistic preferences can naturally appear in relation to the stochastic decision-making of humans. Here, we theoretically derive conflict-free joint decision-making that can satisfy the probabilistic preferences of all individual players. More specifically, we mathematically prove the conditions wherein the deviation of the resultant chance of obtaining each choice from the individual preference profile, which we call the loss, becomes zero, meaning that all players' satisfaction is perfectly appreciated while avoiding decision conflicts. Furthermore, even in situations where zero-loss conflict-free joint decision-making is unachievable, we show how to derive joint decision-making that accomplishes the theoretical minimum loss while ensuring conflict-free choices. Numerical demonstrations are also shown with several benchmarks. |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2205.00799&r= |
| By: | Lindsay E. Relihan |
| Abstract: | Is online retail a complement or substitute to local offline economies? This paper provides the first evidence that consumers use time saved from online retail to increase their trips for time-intensive services like coffee shops. I use new, detailed data on the daily transactions of millions of anonymized customers. I then estimate a discrete choice model of consumer trip choice, which embeds time use mechanisms and accounts for correlations in trip utility shocks. I show that the model matches key features of observed behaviour that are missed by more standard models, such as the disproportionate increase in trips to nearby coffee shops when consumers switch to online groceries. Model counterfactuals are used to forecast changes in future trip demand and outline strategies, which offline retailers can use to compete against online retail. For consumers, I find that the welfare gains from online grocery platforms go disproportionately to high-income consumers. |
| Keywords: | online, retail, time use, tips |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1836&r= |
| By: | Doll, Claire A.; Burton, Michael P.; Pannell, David J.; Rollins, Curtis L. |
| Abstract: | With climate change, it is becoming more challenging for water-limited cities to sustain historic watering levels in urban parks, leading park managers to consider changes to park designs. But whether and to what extent the public value parks that deviate from conventional designs featuring large areas of irrigated lawn remains uncertain. We use a choice experiment to assess public preferences for different park groundcovers in Perth, Australia. With a scale-adjusted latent class model, we identify optimal groundcover compositions for four preference classes. We find that while having some watered grass in urban parks is important, the public are also accepting of non-irrigated alternatives. Incorporating at least 40% native vegetation cover can increase the utility the public derives from parks and conserve water. Park managers also have a degree of flexibility in designing parks that vary from the optimal groundcover composition but that still deliver near-optimal benefits to communities. |
| Keywords: | Environmental Economics and Policy, Land Economics/Use |
| Date: | 2022–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:ags:uwauwp:320820&r= |
| By: | Mai, Nhat Chi |
| Abstract: | Task: Behavioural Economics Assignment task: Essay “A nudge in the right direction?” Behavioural economists study how people’s buying, selling and other behaviour responds to various incentives and social situations. They don’t accept the simplistic notion that people are always rational maximisers. As the Livemint article (2016) states, “According to behavioural economists, the human brain neither has the time nor the ability to process all the information involved in decision making, as assumed by the rational model.” Instead, rationality is bounded: people use simple rules of thumb in making decisions – rules they have developed over time in the light of experience. |
| Date: | 2022–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:4jrc8&r= |
| By: | Kamal, Mustafa (Tasmanian School of Business & Economics, University of Tasmania); Blacklow, Paul (Tasmanian School of Business & Economics, University of Tasmania) |
| Abstract: | We examine the effects of self-control and risk aversion on the gender wage gap in Australia. We find that both self-control and risk aversion play a significantly greater role in predicting the Australian gender wage gap. We also find that self-control affects both the explained and unexplained parts of the wage decomposition whereas risk aversion impacts only the explained part. Furthermore, our results show that self-control retains its importance despite inclusion of the Big Five personality traits. Finally, the results also suggest that the omission of risk aversion has a greater impact on the measurement of the gender wage gap compared to the other two as its inclusion leads to the overall unexplained wage gap falling to about half of the unexplained wage gap measured without it. |
| Keywords: | gender wage gap, wage decompositions, self-control, risk aversion, personality traits |
| JEL: | J31 J71 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:tas:wpaper:45731&r= |
| By: | José-Luis Cruz; Esteban Rossi-Hansberg |
| Abstract: | We study local carbon policy to address the consequences of climate change. Standard analysis suggests that the social cost of carbon determines optimal carbon policy. We start by using the spatial integrated assessment model in Cruz and Rossi-Hansberg (2021) to measure the local social monetary cost of CO² emissions: the Local Social Cost of Carbon (LSCC). Although the largest welfare costs from global warming are concentrated in the warmest parts of the developing world, adjusting for the local marginal utility of income implies that the LSCC peaks in warm and high-income regions like the southern parts of the U.S. and Europe, as well as Australia. We then proceed to study the effect of the actual carbon reduction pledges in the Paris Agreement and the progress they can make in implementing the expressed goal of keeping global temperature increases below 2°C. We find that although the distribution of pledges is roughly in line with the LSCC, their magnitude is largely insufficient to achieve its goals. The required carbon taxes necessary to keep temperatures below 2°C over the current century are an order of magnitude higher and involve large implicit inter-temporal transfers. Increasing the elasticity of substitution across energy sources is important to reduce the carbon taxes necessary to achieve warming goals. |
| JEL: | F1 O18 Q5 R1 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30027&r= |