nep-upt New Economics Papers
on Utility Models and Prospect Theory
Issue of 2023‒06‒19
25 papers chosen by

  1. Dynamic Preference Foundations of Expected Exponentially-Discounted Utility By Craig S. Webb
  2. Subjective Expected Utility Through Stochastic Independence By Michel Grabisch; Benjamin Monet; Vassili Vergopoulos
  3. Time-Use and Subjective Well-Being: Is Diversity Really the Spice of Life? By Friedman-Sokuler, Naomi; Senik, Claudia
  4. On measurable uncertainty and the fight for taking uncertainty seriously in economics By Carlo Zappia
  5. For Better or Worse? Subjective Expectations and Cost-Benefit Trade-Offs in Health Behavior: An Application to Lockdown Compliance in the United Kingdom By Conti, Gabriella; Giustinelli, Pamela
  6. Rareness in the intellectual origins of Walras' theory of value By Cervera-Ferri, Pablo; Insa-Sánchez, Pau
  7. Structural Estimation of Matching Markets with Transferable Utility By Alfred Galichon; Bernard Salanié
  8. Portfolio Optimization Rules beyond the Mean-Variance Approach By Maxime Markov; Vladimir Markov
  9. For Better or Worse? Subjective Expectations and Cost-Benefit Trade-Offs in Health Behavior: An application to lockdown compliance in the United Kingdom By Gabriella Conti; Pamela Giustinelli
  10. Comparing experiments for modelling farm risk management decisions with a focus on extreme weather losses By Duden, Christoph; Offermann, Frank; Mußhoff, Oliver
  11. The Gender Reference Point Gap By Kettlewell, Nathan; Levy, Jonathan; Tymula, Agnieszka; Wang, Xueting
  12. Computing and comparing measures of rationality By Lasse Mononen
  13. Financial Literacy, Experimental Preference Measures and Field Behavior – A Randomized Educational Intervention By Sutter, Matthias; Weyland, Michael; Untertrifaller, Anna; Froitzheim, Manuel; Schneider, Sebastian O.
  14. Does individual behavior converge to policy recommendations in times of pandemic? Evidence from COVID-19 in US states By Robert J. Sonora; Martina Gottwald-Belinić
  15. Measuring the equity risk premium with dividend discount models By Julio Gálvez
  16. On rational choice from lists of sets By Gleb Koshevoy; Ernesto Savaglio
  17. Minimum Wage and Tolerance for High Incomes By Fazio, Andrea; Reggiani, Tommaso G.
  18. Effects of Exchange Rate Volatility on Behaviors of Affliate Firms in a Foreign Oligopoly under the Revision of Supply Chains By Tetsuya Shinkai; Takao Ohkawa; Makoto Okamura; Ryoma Kitamura
  19. Online Learning in a Creator Economy By Banghua Zhu; Sai Praneeth Karimireddy; Jiantao Jiao; Michael I. Jordan
  20. Aversion to Health Inequality - Pure, Income-Related and Income-Caused By Matthew Robson; Owen O’Donnell; Tom Van Ourti
  21. CAP reform and GHG emissions: policy assessment using a PMP agent-based model By Lisa Baldi; Arfini, Filippo; Calzolai, Sara; Donati, Michele
  22. On the Limit Points of an Infinitely Repeated Rational Expectations Equilibrium By Marialaura Pesce; Niccolo Urbinati; Nicholas C. Yannelis
  23. The missing type: where are the inequality averse (students)? By Thomas Epper; Julien Senn; Ernst Fehr
  24. Relational Skills and Corporate Productivity in a Comparative Size Class Perspective By Leonardo Becchetti; Sara Mancini; Nazaria Solferino
  25. Existence of a Non-Stationary Equilibrium in Search-And-Matching Models: TU and NTU By Christopher Sandmann; Nicolas Bonneton

  1. By: Craig S. Webb
    Abstract: Expected exponentially-discounted utility (EEDU) is the standard model of choice over risk and time in economics. This paper considers the dynamic preference foundations of EEDU in the timed risks framework. We first provide dynamic preference foundations for a time-invariant expected utility representation. The new axioms for this are called foregone-risk independence and strong time invariance. This class of dynamic preferences includes EEDU as a special case. If foregone-risk independence is strengthened to a new condition called conditional consistency, then an EEDU representation results. Alternative approaches for extending exponential discounting axioms to risk are considered, resulting in five new preference foundations of EEDU.
    Date: 2023–05
  2. By: Michel Grabisch (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 - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Benjamin Monet (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vassili Vergopoulos (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - Université Paris-Panthéon-Assas)
    Abstract: This paper studies decision-making in the face of two stochastically independent sources of uncertainty. It characterizes axiomatically a Subjective Expected Utility representation of preferences where subjective beliefs consist of a product probability measure. The two key axioms in this characterization both involve some behavioral notions of stochastic independence. Our result can be understood as a purely subjective version of the Anscombe and Aumann (1963) theorem that avoids the controversial use of exogenous probabilities by appealing to stochastic independence. We also obtain an extension to Choquet Expected Utility representations.
    Keywords: subjective probability, expected utility, stochastic independence, subjective independence, capacity, Choquet expectation.
    Date: 2023
  3. By: Friedman-Sokuler, Naomi (Bar-Ilan University); Senik, Claudia (Paris School of Economics)
    Abstract: Using the American and the French time-use surveys, we examine whether people have a preference for a more diversified mix of activities, in the sense that they experience greater well-being when their time schedule contains many different activities rather than is concentrated on a very small number. This could be due to decreasing marginal utility, as is assumed for goods consumption, if each episode of time is conceived as yielding a certain level of utility per se. With returns to specialization, people would then face a trade-off between efficiency and diversity in choosing how to allocate time. We examine these issues and investigate potential gender differences, considering both instantaneous feelings and life satisfaction.
    Keywords: time allocation, time-use diversity, subjective well-being, life satisfaction, momentary utility, gender
    JEL: I31 J22
    Date: 2023–04
  4. By: Carlo Zappia
    Abstract: This paper discusses the engagement of economists with the issue of the measurability of uncertainty. Since Knight’s seminal distinction between risk, intended as measurable uncertainty, and unmeasurable uncertainty, the question has been to what extent the extension of the theory of choice from certainty to risk through von Neumann and Morgenstern’s expected utility hypothesis would allow dealing with uncertain events. The paper develops from a study of the rationale underlying the theories of those authors who objected to the mainstream view that the axiomatic approach developed in the early 1950s, mainly through Leonard Savage’s generalization of expected utility, makes it, indeed, possible to reduce uncertainty to risk. After a summary of the meaning attributed by authors such as Knight, Keynes, Shackle and Ellsberg to the contention that uncertainty is irreducible to risk and unmeasurable, the paper aims to investigate why this view did not emerge as a significant alternative to the mainstream up until recently. A main reason, at times alluded to but never openly discussed in the literature, is shown to be the close link between Savage and the group of decision theorists at the Cowles Commission for Research in Economics under the directorship of Jacob Marschak and Tjalling Koopmans. Archival evidence suggests that arguing that a theory of decision under uncertainty could be developed on the basis of “axioms that seem unobjectionable, ” as Koopmans put it, was indeed an integral part of the attempt undertook at Cowles to move forward in economic theory by prioritizing scientific rigour in the form of mathematical models engaging with new mathematical tools
    Keywords: probability, uncertainty, decision-making
    JEL: B21 D81
    Date: 2022–12
  5. By: Conti, Gabriella (University College London); Giustinelli, Pamela (Bocconi University)
    Abstract: We provide a framework to disentangle preferences and beliefs in health behavior and apply it to lockdown compliance in the UK. We estimate a model of compliance choice with uncertain costs and benefits to quantify utility tradeoffs, decompose group differences in compliance, and compute monetary compensations for complying. Individuals have largest disutility from passing away from COVID and being caught transgressing, and largest utility from preserving their mental health. While preferences and beliefs explain compliance differences by gender, only preferences drive differences by vulnerability. When others fail to comply and trust breaks down, the risk tolerant and those without prior COVID experience comply less, the vulnerables more. When a public figure breaches the rules, opponents comply less. Heterogenous beliefs, preferences, and responses to others are key to health policies.
    Keywords: preferences, beliefs, health behaviors, COVID-19
    JEL: C25 C83 D84 I12 I18
    Date: 2023–05
  6. By: Cervera-Ferri, Pablo; Insa-Sánchez, Pau
    Abstract: Historians of economic thought have carried out detailed studies of classical and marginalist approaches to value based on production cost and utility respectively, not to mention about the fusion of both interpretations by the neoclassical school. This is not the case with rareness value, a theory commonly attributed to Léon Walras, although Aristotle surely had rareness in mind when he first attempted to explain chrematistics. This article focuses on how our understanding of rareness has evolved from the earliest economic formulations to those of Auguste and Léon Walras, contesting Rothbard’s thesis that there is only one way in which the transmission of the utility theory of value can be tracked from scholasticism to the Austrian school. On the contrary, the concept of rareness continued to figure in some theories of value of the French Enlightenment, especially those that emerged within Calvinist circles, and was recovered in times of reaction against the dominant classicism.
    Date: 2023–04–29
  7. By: Alfred Galichon (NYU - New York University [New York] - NYU - NYU System, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Bernard Salanié (Columbia University [New York])
    Date: 2023
  8. By: Maxime Markov; Vladimir Markov
    Abstract: In this paper, we revisit the relationship between investors' utility functions and portfolio allocation rules. We derive portfolio allocation rules for asymmetric Laplace distributed $ALD(\mu, \sigma, \kappa)$ returns and compare them with the mean-variance approach, which is based on Gaussian returns. We reveal that in the limit of small $\frac{\mu}{\sigma}$, the Markowitz contribution is accompanied by a skewness term. We also obtain the allocation rules when the expected return is a random normal variable in an average and worst-case scenarios, which allows us to take into account uncertainty of the predicted returns. An optimal worst-case scenario solution smoothly approximates between equal weights and minimum variance portfolio, presenting an attractive convex alternative to the risk parity portfolio. Utilizing a microscopic portfolio model with random drift and analytical expression for the expected utility function with log-normal distributed cross-sectional returns, we demonstrate the influence of model parameters on portfolio construction. Finally, we address the issue of handling singular covariance matrices by imposing block structure constraints on the precision matrix directly. This comprehensive approach enhances allocation weight stability, mitigates instabilities associated with the mean-variance approach, and can prove valuable for both short-term traders and long-term investors.
    Date: 2023–05
  9. By: Gabriella Conti (University College London); Pamela Giustinelli (Bocconi University)
    Abstract: We provide a framework to disentangle the role of preferences and beliefs in health behavior, and we apply it to compliance behavior during the acute phase of the COVID-19 pandemic. Using rich data on subjective expectations collected during the spring 2020 lockdown in the UK, we estimate a simple model of compliance behavior with uncertain costs and benefits, which we employ to quantify the utility trade-offs underlying compliance, to decompose group differences in compliance plans, and to compute the monetary compensation required for people to comply. We find that, on average, individuals assign the largest disutility to passing away from COVID-19 and being caught transgressing, and the largest utility to preserving their mental health. But we also document substantial heterogeneity in preferences and/or expectations by vulnerability status, gender, and other individual characteristics. In our data, both preferences and expectations matter for explaining gender differences in compliance, whereas compliance differences by vulnerability status are mainly driven by heterogeneity in preferences. We also investigate the relationship between own and others’ compliance. When others fail to comply and trust breaks down, individuals respond heterogeneously depending on their own circumstances and characteristics. When others around them comply less, those with higher risk tolerance and those without prior COVID-19 experience plan to comply less themselves, while the vulnerables plan to comply more. When a high-level public figure breaches the rules, supporters of the opposing political party plan to comply less. These findings emphasize the need for public health policies to account for heterogenous beliefs, preferences, and responses to others in citizens’ health behaviors.
    Keywords: health behavior, COVID-19, United Kingdom
    JEL: C25 C83 D84 I12 I18
    Date: 2023–05
  10. By: Duden, Christoph; Offermann, Frank; Mußhoff, Oliver
    Abstract: Extreme weather events pose an economic threat to farms. The risk management behaviour against such events is often studied using prospect theory as a framework, but empirically deriving corresponding parameters in the field involving farmers is challenging. To address this issue, we compare three methods of eliciting prospect theory parameters using a multiple price list design in Germany: a framed field experiment, a framed student experiment and an artefactual field experiment. The results show that these experiments generate different prospect theory parameters. The lower the probability the higher the differences, which is particularly important for managing risk from low-probability shocks. Despite these differences, the mean coefficients of the three experiments reveal a low willingness to pay for crop insurance. We find evidence that individual responses to the artefactual and student experiments correlate with the risk attitude self-assessment, whereas responses to the framed field experiment correlate with the purchase of crop insurance.
    Keywords: prospect theory, risk management, catastrophic risk, behavioural economics, decision analysis
    Date: 2023
  11. By: Kettlewell, Nathan (University of Technology, Sydney); Levy, Jonathan (University of Sydney); Tymula, Agnieszka (University of Sydney); Wang, Xueting (Royal Melbourne Institute of Technology)
    Abstract: Studies have frequently found that women are more risk averse than men. In this paper, we depart from usual practice in economics that treats risk attitude as a primitive, and instead adopt a neuroeconomic approach where risk attitude is determined by the reference point which can be easily estimated using standard econometric methods. We then evaluate whether there is a gender difference in the reference point, explaining the gender difference in risk aversion observed using traditional approaches. In our study, women make riskier choices less frequently than men. Compared to men, we find that women on average have a significantly lower reference point. By acknowledging the reference point as a potential source of gender inequality, we can begin a new discussion on how to address this important issue.
    Keywords: reference point, risk attitude, neuroeconomics, gender, inequality, experiment
    JEL: C90 D87 D91 J16
    Date: 2023–05
  12. By: Lasse Mononen
    Abstract: The rationality of choices is one of the most fundamental assumptions of traditional economic analysis. Yet, substantial evidence has documented that choices often cannot be rationalized by utility maximization. Several measures of rationality have been introduced in the literature to quantify the size of rationality violations. However, it is not clear which of these measures should be used in applications, and many measures are computationally very demanding, which has restricted their widespread use. First, we introduce novel variations of the measures that allow us to establish connections between the different measures. Second, we develop methods to compute the most-used measures of rationality. Exploiting this computational progress, we offer simulation-based comparisons of the accuracy of the measures. These simulations show that a new type of measure that combines the size of rationality violations with the number of rationality violations outperforms other measures. Finally, we offer a method to calculate statistical significance levels for rationality violations.
    Date: 2023–05
  13. By: Sutter, Matthias (Max Planck Institute for Research on Collective Goods); Weyland, Michael (Ludwigsburg University of Education); Untertrifaller, Anna (University of Cologne); Froitzheim, Manuel (University of Siegen); Schneider, Sebastian O. (Max Planck Institute for Research on Collective Goods)
    Abstract: We present the results of a randomized intervention to study how teaching financial literacy to 16-year old high-school students affects their behavior in risk and time preference tasks. Compared to two different control treatments, we find that teaching financial literacy makes subjects behave more patiently, more time-consistent, and more risk-averse. These effects persist for up to almost 5 years after our intervention. Behavior in the risk and time preference tasks is related to financial behavior outside the lab, in particular spending patterns. This shows that teaching financial literacy affects economic decision-making which in turn is important for field behavior.
    Keywords: financial behavior, time preferences, risk preferences, randomized intervention, financial literacy, field experiment
    JEL: C93 D14 I21
    Date: 2023–04
  14. By: Robert J. Sonora (Faculty of Economics and Business, University of Zagreb); Martina Gottwald-Belinić (Faculty of Economics and Business, University of Zagreb)
    Abstract: The COVID-19 pandemic is an exceptional shock on human habitual behavior and provides a rare opportunity to analyze resilience in preferences. We use Google's mobility and policy stringency indices to investigate if policy maker and resident „preferences" align over the period. Differences in utility across the ten largest states in the United States should lead to idiosyncratic response on perceived cost of restrictions and associated risk attitudes in policy respond. We conduct structural break and rolling unit root tests on estimated residual. Our results suggest that individual behavior converges to the policy prescriptions within the time span up to 18 months.
    Keywords: COVID-19, individual risk behavior, structural break, unit root tests
    JEL: C22 E70 H75 I12 I18
    Date: 2023–06–05
  15. By: Julio Gálvez (Banco de España)
    Abstract: This paper assesses the estimation of the so-called equity risk premium, i.e. the expected return on equities in excess of the risk-free rate, using the dividend discount model as the organizing framework. I compare the equity risk premium estimates from different dividend discount models in terms of the in-sample and out-of-sample forecasting ability across different time horizons. Using data from the Eurostoxx 50 from 2001-2021, I find that equity risk premium estimates exhibit similar dynamics, and are elevated during periods of high uncertainty, such as the onset of the COVID-19 pandemic. Moreover, I find that the three-stage dividend discount model, which divides earnings growth into an extraordinary, transitional and steady-state phase, performs the best in terms of forecasting ability.
    Keywords: expected returns, equity risk premium, dividend discount model, return predictability
    JEL: G10 G12 G15
    Date: 2022–05
  16. By: Gleb Koshevoy; Ernesto Savaglio
    Abstract: We analyze the rationality of a Decision Maker (DM) who chooses from lists of sets of alternatives. A new class of choice functions, representing the DM's choice-behavior, and a new rationality axiom are proposed and studied. We show that a property, that we call No-Regret suggests that alternatives disregarded as of no interest for the DM be ignored, is a rationality criterion that encompasses some compelling postulates of the classical choice model and extends them to the proposed general framework of choice from lists of sets of alternatives.
    Keywords: Choice from lists of sets, No-regret, Outcast, Heritage, Path-independence.
    JEL: D01
    Date: 2023–03
  17. By: Fazio, Andrea (Sapienza University of Rome); Reggiani, Tommaso G. (Cardiff University)
    Abstract: We suggest that stabilizing the baseline income can make low-wage workers more tolerant towards high income earners. We present evidence of this attitude in the UK by exploiting the introduction of the National Minimum Wage (NMW), which institutionally sets a baseline pay reducing the risk of income losses and providing a clear reference point for British workers at the lower end of the income distribution. Based on data from the British Household Panel Survey (BHPS), we show that workers who benefited from the NMW program became relatively more tolerant of high incomes and more likely to support and vote for the Conservative Party. As far as tolerance for high incomes is related to tolerance of inequality, our results may suggest that people advocate for equality also because they fear income losses below a given reference point.
    Keywords: reference point, loss aversion, minimum wage, redistribution, inequality, UK
    JEL: H10 H53 D63 D69 Z1
    Date: 2023–05
  18. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Takao Ohkawa (Faculty of Economics, Ritsumeikan University); Makoto Okamura (Faculty of Economics, Gakushuin University); Ryoma Kitamura (Faculty of Economics, Otemon Gakuin University)
    Abstract: This paper investigates the changes in exchange rate volatility on an international oligopolistic market in a foreign country that accepts n affiliate firms through foreign direct investment (FDI) from a home country. Under the revision of the supply chains of essential products such as high-tech products, the affiliate firms are forced to procure their essential intermediate products from firms in their home country, even though they are expensive. We derive a Cournot equilibrium of the oligopolistic foreign market, in which affiliate firms compete with foreign firms under foreign exchange rate uncertainty when the number of affiliates, n, is exogenously given. In the equilibrium, we show the affiliate firms/the foreign firms aggressively expand their outputs when the relative risk aversion coefficient is large /small at equilibrium. Affiliate firms may earn ex-post expected profits less than the expected profits of the foreign firms even when the relative risk aversion coefficient is small at equilibrium. However, whether the change in the foreign exchange rate may be profitable for the ex-post profits of the affiliate and parent firms is indeterminate.
    Keywords: risk aversion, exchange rate volatility, affiliate firms, foreign oligopolistic market, revision of supply chains
    JEL: G32 L13 L12
    Date: 2023–05
  19. By: Banghua Zhu; Sai Praneeth Karimireddy; Jiantao Jiao; Michael I. Jordan
    Abstract: The creator economy has revolutionized the way individuals can profit through online platforms. In this paper, we initiate the study of online learning in the creator economy by modeling the creator economy as a three-party game between the users, platform, and content creators, with the platform interacting with the content creator under a principal-agent model through contracts to encourage better content. Additionally, the platform interacts with the users to recommend new content, receive an evaluation, and ultimately profit from the content, which can be modeled as a recommender system. Our study aims to explore how the platform can jointly optimize the contract and recommender system to maximize the utility in an online learning fashion. We primarily analyze and compare two families of contracts: return-based contracts and feature-based contracts. Return-based contracts pay the content creator a fraction of the reward the platform gains. In contrast, feature-based contracts pay the content creator based on the quality or features of the content, regardless of the reward the platform receives. We show that under smoothness assumptions, the joint optimization of return-based contracts and recommendation policy provides a regret $\Theta(T^{2/3})$. For the feature-based contract, we introduce a definition of intrinsic dimension $d$ to characterize the hardness of learning the contract and provide an upper bound on the regret $\mathcal{O}(T^{(d+1)/(d+2)})$. The upper bound is tight for the linear family.
    Date: 2023–05
  20. By: Matthew Robson (Erasmus University Rotterdam); Owen O’Donnell (Erasmus University Rotterdam); Tom Van Ourti (Erasmus University Rotterdam)
    Abstract: We design a novel experiment to identify aversion to pure (univariate) health inequality separately from aversion to income-related and income-caused health inequality. Participants allocate resources to determine health of individuals. Identification comes from random variation in resource productivity and in information on income and its causal effect. We gather data (26, 286 observations) from a UK representative sample (n=337) and estimate pooled and participant-specific social preferences while accounting for noise. The median person has strong aversion to pure health inequality, challenging the health maximisation objective of economic evaluation. Aversion to health inequality is even stronger when it is related to income. However, the median person prioritises health of poorer individuals less than is assumed in the standard measure of income-related health inequality. On average, aversion to that inequality does not become stronger when low income is known to cause ill-health. There is substantial heterogeneity in all three types of inequality aversion
    Keywords: Inequality Aversion, Social Preferences, Health, Income, Experiment
    JEL: C90 D30 D63 I14
    Date: 2023–04–12
  21. By: Lisa Baldi; Arfini, Filippo; Calzolai, Sara; Donati, Michele
    Abstract: The aim of this research work is to assess the likelihood of dairy farmers to accept predefined policy scenarios that implies different level of CO2 taxation on GHG emissions produced by the livestock sector. It uses an agent-based model (ABM) and it follows the positive mathematical programming (PMP) approach. ABMs allow to evaluate agricultural policies and farmers’ level of acceptance simulating interaction between farmers, taking territorial specificity and farm heterogeneity into account. The PMP methodology enables to add social and cultural perspective to the economical drivers. The Least Square method, applied to the PMP methodology, allows to overcome shortage in data availability. The model is calibrated on FADN data for the Emilia Romagna region (Italy), year 2020. Results show that farmers take decisions based on economic profitability but also on social and cultural background. Farmers opt for more efficient agricultural management practices if economically convenient, however the possibility to exchange production factors can contribute to the optimisation of their utility function.
    Keywords: Environmental Economics and Policy
    Date: 2023–03
  22. By: Marialaura Pesce (Università di Napoli Federico II and CSEF); Niccolo Urbinati (Università Ca Foscari Venezia); Nicholas C. Yannelis (The University of Iowa)
    Abstract: We show that a symmetric information Rational Expectations Equilibrium (REE) exists universally (and not generically), it is Pareto efficient and obviously incentive compatible. Agents, in a repeated economy framework, can reach a symmetric information REE (i.e., an efficient and incentive compatible equilibrium outcome) by observing the past asymmetric REE and also by updating their private information. We also prove the converse result, i.e., given a symmetric information REE, we can construct a sequence of approximate asymmetric REE allocations that converges to the symmetric information REE. The approximate REE can be interpreted as the mistakes that agents make due to bounded rationality, nonetheless, in the limit an exact symmetric information REE is reached. In view of the above results, the symmetric information REE provides a rationalization for the asymmetric one.
    Keywords: Learning, Rational expectations equilibrium, Asymmetric information, Stability.
    Date: 2023–06–01
  23. By: Thomas Epper; Julien Senn; Ernst Fehr
    Abstract: The empirical evidence on the existence of social preferences — or lack thereof — is predominantly based on student samples. Yet, knowledge about whether these findings can be extended to the general population is still scarce. In this paper, we compare the distribution of social preferences in a student and in a representative sample. Using descriptive analysis and a rigorous clustering approach, we show that the distribution of the general population’s social preferences fundamentally differs from the students’ distribution. In the general population, three types emerge: an inequality averse, an altruistic, and a selfish type. In contrast, only the altruistic and the selfish types emerge in the student population. The absence of an inequality averse type in the student population is particularly striking considering the fact that this type comprises about 50 percent of the individuals in the general population sample. Using structural estimation, we show that differences in age and education are likely to explain these results. Younger and more educated individuals — which typically characterize students — not only tend to have lower degrees of other-regardingness but this reduction in other-regardingness basically nullifies behindness aversion among students. Differences in income, however, do not seem to affect social preferences. These findings provide a new cautionary tale that insights from student populations might not extrapolate to the general population.
    Keywords: Social preferences, altruism, inequality aversion, preference heterogeneity, subject pools, sample selection
    JEL: C80 C90 D30 D63
    Date: 2023–04
  24. By: Leonardo Becchetti (CEIS & DEF, University of Rome "Tor Vergata"); Sara Mancini (University of Rome "Tor Vergata"); Nazaria Solferino (Università della Calabria)
    Abstract: Based on results from the different fields of the game theoretic literature on strategic interactions and social dilemmas, gift exchange and procedural utility, we argue that corporate social responsibility and relational skills i) with other firms; ii) between employers and workers iii) among workers and iv) with stakeholders are associated to positive effects on productivity. We test our research hypothesis in a comparative perspective on small, medium and large sized Italian firms. We find that size matters when investigating the impact of relational skills on added value per worker after controlling for relevant concurring factors. The identified significant skill related components are: i) corporate policies considering strategic workers’ wellbeing; ii) team working attitudes considered as priority soft skills when hiring workers; iii) initiatives in favour of the productive network operating in the same local area; iv) involvement of stakeholders in CSR projects. Our findings show that the fourth component (stakeholder involvement) is positive and significant for all (small, medium and large) size classes, while the first (workers wellbeing) for small and medium firms, the second (team working) applies mainly to medium firms, and the third (initiative for the local productive network) to medium and large firms. Instrumental variable estimates on the relational skill principal component suggest that a causality link exists beyond these significant correlations. Our conclusion is that scale has an inverse U-shaped effect on the impact of team skills, weakens the impact of gift exchange mechanisms, while it reinforces those of investment in the local productive environment on added value per worker
    Keywords: social dilemma, gift exchange, procedural utility, corporate social responsibility, corporate size
    Date: 2023–05–29
  25. By: Christopher Sandmann; Nicolas Bonneton
    Abstract: This paper proves the existence of a non-stationary equilibrium in the canonical searchand- matching model with heterogeneous agents. Non-stationarity entails that the number and characteristics of unmatched agents evolve endogenously over time. An equilibrium exists under minimal regularity conditions and for both paradigms considered in the literature: transferable and non-transferable utility. We suggest that our proof strategy applies more broadly to a class of continuous-time, infinite-horizon models with a continuum of heterogeneous agents, also referred to as mean-field games, that evolve deterministically over time.
    Keywords: equilibrium existence, search and matching, non-stationary, mean-field game
    JEL: C62 C78 D50
    Date: 2023–05

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