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on Utility Models and Prospect Theory |
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Issue of 2023‒07‒17
27 papers chosen by |
| By: | MILLER, ANNE |
| Abstract: | Van Praag (1968) developed a multiplicative utility function, based on 'leaning S-shaped, bounded cardinal utilities', comprising increasing marginal utility initially, representing 'deprivation' first, then diminishing marginal utility representing 'sufficiency'. A new separability rule, based on the satisfaction of human needs, suggests when to multiply and when to add utilities. A functional form is derived to explore the theoretical effects of adding two S-shaped bounded cardinal utilities, yielding both convex- and concave-to-the-origin indifference curves, the latter defining 'dysfunctional poverty'. The convex-to-the-origin indifference curves potentially provide all of superior-normal, inferior-normal and Giffen responses. Each derived structural form, including labour supply, manifests a discontinuity, an envelope curve and high elasticises associated with deprivation. This provides an integrating framework for analysing utility and demand where the emphasis is on people and the satisfaction of needs, with applications in: housing health services, education, wellbeing; poverty and inequality studies; tax and benefit policy analysis; and behavioural economics. |
| Keywords: | Increasing marginal utility, additive utilities, absolute poverty line, Giffen good, reservation wage. |
| JEL: | D11 J22 |
| Date: | 2023–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117618&r=upt |
| By: | Marcela Ibanez (University of Goettingen); Sebastian O. Schneider (Max Planck Institute for Research on Collective Goods) |
| Abstract: | This paper empirically examines the behavioral precautionary saving hypothesis that uncertainty about future income triggers an increase in saving because of loss aversion. Guided by the theoretical model of Koszegi and Rabin (2009), we first extend their theoretical analysis to also consider the internal margin, i.e., the strength, of loss aversion, and then empirically study the relation between income risk, experimentally elicited loss aversion, and precautionary savings. We do so using a sample of 640 individuals from the low-income population of Bogotá, characterized by limited financial education and subject to substantial income risk. In line with the theoretical predictions, we find that an increase in income risk is associated with higher savings for loss-averse individuals, and that this increase in savings grows with the degree of loss aversion. An accompanying laboratory experiment confirms that an exogenous increase in income risk causally leads to this observed pattern. Thus, consistent with the theoretical predictions derived from the model of Koszegi and Rabin (2009), but in contrast to common assumptions, our findings establish that loss aversion is not necessarily an obstacle to saving, and thus identify new approaches of increasing saving among individuals with low financial education. |
| Keywords: | Reference-dependent utility, expectations, consumption plans, precautionary savings, loss aversion, risk preferences, income risk, low-income, Bogotá, experiment |
| JEL: | D11 D14 D15 D81 D90 G40 J65 O16 |
| Date: | 2023–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2023_06&r=upt |
| By: | Giménez-Gómez, José Manuel; Sudhölter, Peter; Vilella Bach, Misericòrdia |
| Abstract: | A non-negative transferable utility (TU) game is average monotonic if there exists a non-negative allocation according to which the relative worth is not decreasing when enlarging the coalition. We generalize this definition to the nontransferable utility (NTU) case. It is shown that an average monotonic NTU game shares several properties with an average monotonic TU game. In particular it has a special core element and there exists a population monotonic allocation scheme. We show that an NTU bankruptcy game is average monotonic with respect to the claims vector. Keywords: nontransferable utility; average monotonicity; core; population monotonicity JEL classification: C71 |
| Keywords: | Jocs cooperatius (Matemàtica), 33 - Economia, |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/535076&r=upt |
| By: | Drakopoulos, Stavros A. |
| Abstract: | The issue of interpersonal comparisons of utility is about the possibility (or not) of comparing the utility or welfare or the mental states in general, of different individuals. Embedded in the conceptual framework of utilitarianism, interpersonal comparisons were admissible in economics as part of the theoretical justification of welfare policies until the first decades of the twentieth century. Under the strong influence of the scientific philosophy of positivism as reflected in the works of early neoclassical economists and as epitomized by Lionel Robbins, utility comparisons were subsequently rejected as a value judgement. Robbins’ methodological stance is still prevalent among mainstream economists. Despite the explicit rejection of comparability by the majority of economists, interpersonal comparisons are necessary for many key policy issues, such as progressive taxation, social welfare policies, GDP based welfare comparisons, cost-benefit analysis, and public goods provision. In this paper, the case of interpersonal utility comparisons is discussed as an illustrative example of the usefulness of the study of the role of value judgements, and generally of the interrelationship between ethics and economics. It is also argued that the current tension between theory and policy practice might be resolved through the efforts of prominent economists and philosophers to challenge positivism, and especially its problematic treatment of value judgements and of ethical assumptions in general. |
| Keywords: | Value Judgements; Utility Comparisons; Positivism and Economics; Ethics and Economic Policy |
| JEL: | A12 B00 B40 D60 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117577&r=upt |
| By: | Ferran Sancho |
| Abstract: | We reformulate the Stone-Geary utility function to incorporate non-unitary elasticities of substitution. We show that this extended linear expenditure system eliminates some of the restrictions implied by the Stone-Geary function. In particular, and most significantly, the proportions of expenditure over supernumerary income become price responsive under the extended demand system and their price derivatives behave coherently with the degree of substitution. |
| Keywords: | Linear expenditure system, Constant elasticity of substitution, Calibrated demand functions. |
| JEL: | C55 D11 D12 |
| Date: | 2023–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:971.23&r=upt |
| By: | Andersson, Henrik; Scholtz, Henrik; Zheng, Jiakun |
| Abstract: | This paper applies an experimental design developed by Bleichrodt et al. (2010) to test the key assumption of original regret theory (Loomes and Sugden, 1982): convexity of the regret function. We elicit preferences for financial and health outcomes for about 1, 000 subjects, yielding some evidence of minor dierences between financial domain and health domain. While aggregate results seem to support regret theory at first sight, individual-level analyses show that the majority of subjects violate the predictions of regret theory with a convex regret function. Our results thus challenge the predictive accuracy of regret theory as a descriptive theory of decision-making under risk. |
| Keywords: | Original regret theory; Decision under uncertainty; Utility measurement; Online experiments |
| JEL: | C91 D81 |
| Date: | 2023–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128169&r=upt |
| By: | Shadi Haj-Yahia; Omar Mansour; Tomer Toledo |
| Abstract: | Discrete choice models (DCM) are widely employed in travel demand analysis as a powerful theoretical econometric framework for understanding and predicting choice behaviors. DCMs are formed as random utility models (RUM), with their key advantage of interpretability. However, a core requirement for the estimation of these models is a priori specification of the associated utility functions, making them sensitive to modelers' subjective beliefs. Recently, machine learning (ML) approaches have emerged as a promising avenue for learning unobserved non-linear relationships in DCMs. However, ML models are considered "black box" and may not correspond with expected relationships. This paper proposes a framework that expands the potential of data-driven approaches for DCM by supporting the development of interpretable models that incorporate domain knowledge and prior beliefs through constraints. The proposed framework includes pseudo data samples that represent required relationships and a loss function that measures their fulfillment, along with observed data, for model training. The developed framework aims to improve model interpretability by combining ML's specification flexibility with econometrics and interpretable behavioral analysis. A case study demonstrates the potential of this framework for discrete choice analysis. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2306.00016&r=upt |
| By: | Denizalp Goktas; Jiayi Zhao; Amy Greenwald |
| Abstract: | A prevalent theme in the economics and computation literature is to identify natural price-adjustment processes by which sellers and buyers in a market can discover equilibrium prices. An example of such a process is t\^atonnement, an auction-like algorithm first proposed in 1874 by French economist Walras in which sellers adjust prices based on the Marshallian demands of buyers. A dual concept in consumer theory is a buyer's Hicksian demand. In this paper, we identify the maximum of the absolute value of the elasticity of the Hicksian demand, as an economic parameter sufficient to capture and explain a range of convergent and non-convergent t\^atonnement behaviors in a broad class of markets. In particular, we prove the convergence of t\^atonnement at a rate of $O((1+\varepsilon^2)/T)$, in homothetic Fisher markets with bounded price elasticity of Hicksian demand, i.e., Fisher markets in which consumers have preferences represented by homogeneous utility functions and the price elasticity of their Hicksian demand is bounded, where $\varepsilon \geq 0$ is the maximum absolute value of the price elasticity of Hicksian demand across all buyers. Our result not only generalizes known convergence results for CES Fisher markets, but extends them to mixed nested CES markets and Fisher markets with continuous, possibly non-concave, homogeneous utility functions. Our convergence rate covers the full spectrum of nested CES utilities, including Leontief and linear utilities, unifying previously existing disparate convergence and non-convergence results. In particular, for $\varepsilon = 0$, i.e., Leontief markets, we recover the best-known convergence rate of $O(1/T)$, and as $\varepsilon \to \infty$, e.g., linear Fisher markets, we obtain non-convergent behavior, as expected. |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2306.04890&r=upt |
| By: | Appelbaum, Elie; Melatos, Mark |
| Abstract: | We investigate preferential trade agreement (PTA) formation when risk-averse countries face demand uncertainty and hence, have an insurance motive for pursuing trade integration. In this environment, when deciding which type of PTA - if any - they wish to form, countries seek to maximise their net welfare; that is, their expected utility minus a risk premium. The desire for insurance influences not just whether a particular PTA forms, but also the preferred depth of integration. We analyze the insurance implications of free trade agreements (FTAs), customs unions (CUs), and countries choosing to stand alone. We further distinguish between shallow CUs and deep CUs; in the former, members maximise the sum of their individual net welfare, while in the latter, they maximise the net value of the sum of their individual expected welfare. We show that differences in country risk attitudes, the levels of risk they face, and the degree to which these risks are correlated with each other (each and together) influence the formation and design of TAs. When countries' demands are uncorrelated, they form a deep CU if their levels of risk aversion are sufficiently different. If, however, their risk attitudes are similar, countries opt for shallower trade integration - either a shallow CU or a FTA - if they face low levels of uncertainty, and choose to stand alone if one country faces a sufficiently high level of uncertainty. When countries' demands are correlated, they tend to form a deep CU if their demands are strongly negatively correlated, a FTA if their demands are strongly positively correlated and a shallow CU when their demands are weakly correlated. Intuitively, differences in their degree of risk aversion act as an additional source of comparative advantage. Deeper integration- particularly via a CU - permits less risk-averse members to essentially export their relative partiality for risk to more risk-averse partners, thereby effectively providing the latter with insurance. |
| Keywords: | Trade Agreement, Free Trade Area, Customs Union, Insurance, Uncertainty, Risk Premium. |
| JEL: | D81 F12 F13 F15 |
| Date: | 2022–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117533&r=upt |
| By: | Julian H\"olzermann |
| Abstract: | This paper studies dynamic asset allocation with interest rate risk and several sources of ambiguity. The market consists of a risk-free asset, a zero-coupon bond (both determined by a Vasicek model), and a stock. There is ambiguity about the risk premia, the volatilities, and the correlation. The investor's preferences display both risk aversion and ambiguity aversion. The optimal investment problem can be solved in closed-form under typical market conditions. The solution shows that the investor does not hedge ambiguity but only risk, while the ambiguity only affects the speculative motives of the investor. An implementation of the optimal investment strategy shows the impact of the different sources of ambiguity. Ambiguity aversion helps to tame the highly leveraged portfolios neglecting ambiguity and leads to strategies that are more in line with popular investment advice. The solution method for the optimal investment problem is based on an extension of the martingale optimality principle. |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2306.13343&r=upt |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:hal:spmain:hal-03935865&r=upt |
| By: | Charles F. Manski; Eytan Sheshinski |
| Abstract: | A central mission of public economics has been to determine policies that optimize utilitarian welfare. To improve the realism of policy evaluation, it is desirable to enrich understanding of behavior and develop methods of analysis that use the enriched understanding to assess policies. Attention has been given to recognition that behavior may be boundedly rational, but little has been done to draw the implications of this work for mechanism design. Behavioral economists have suggested that planners should limit the choices available to individuals or should frame the options in a manner thought to influence choice, but the discussion has commonly been verbal and casual. We formally consider a planner who has the power to design a discrete choice set from which individuals will choose. We suppose that individuals may be boundedly rational and, hence, may not maximize utility. Our concern is realistic settings in which persons have heterogeneous preferences and may vary in how their choices deviate from utility maximization. We find that optimal paternalism is subtle. The policy that most effectively constrains or influences individual choices depends on the distribution of preferences and the choice probabilities measuring the extent to which persons behave suboptimally, conditional on their preferences. |
| JEL: | H10 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31349&r=upt |
| By: | De Donder, Philippe; Achou, Bertrand; Glenzer, Franca; Lee, Minjoon; Leroux, Marie-Louise |
| Abstract: | Marginal utility of financial resources when needing long-term care, and the related incentives for precautionary savings and insurance, may vary significantly by whether one receives care at home or in a nursing home. In this paper, we develop strategic survey questions to estimate those differences. All else equal, we find that the marginal utility is significantly higher when receiving care at home rather than in a nursing home. We then use these estimates within a quantitative life cycle model to evaluate the impact of the expected choice of care setting (home versus nursing home) on precautionary savings and insurance valuation. The estimated marginal utility differences imply a significant increase in the incentives to save when expecting to receive care at home. Larger incentives to self-insure also translate to a higher valuation of additional subsidies for home care than for nursing homes, shedding light on an efficient way to expand public long-term care subsidies. We also examine how the magnitude of our results quantitatively varies with the existing public long-term care subsidies |
| Keywords: | Long-term Care; Marginal Utility; Home Care; Nursing Home; Savings |
| JEL: | D14 E21 G51 I0 |
| Date: | 2023–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128135&r=upt |
| By: | Nina Bobkova; Helene Mass |
| Abstract: | We analyze a social learning model where the agents’ utility depends on a common component and an idiosyncratic component. Each agent splits a learning budget between the two components. We show that information about the common component is fully aggregated if and only if agents do not have to sacrifice learning about their idiosyncratic component in order to learn marginally about the common component. If agents vary in how much they value their idiosyncratic component, then the order of agents can strictly impact how much information is aggregated |
| Keywords: | Information Acquisition, Social Learning, Information Aggregation |
| JEL: | D82 D83 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_433&r=upt |
| By: | Olivier Kayser |
| Abstract: | Considering that firms have multiple consumer taste distributions, we introduce in the vertical differentiation framework an ambiguous demand in a duopoly. We investigate the effects of ambiguity aversion on product differentiation and pricing choices. By specifying these distributions by Heaviside functions we obtain results on the existence and form of several Subgame-Perfect Nash Candidate Equilibria. The associated equilibrium prices are decreasing with ambiguity aversion. Under the market coverage assumption, we show that the level of differentiation is always maximal whatever the degree of ambiguity aversion. Finally, we study which of the Subgame-Perfect Nash Candidate Equilibria is the solution of the game depending on the width of the taste distributions and the degree of ambiguity aversion. |
| Keywords: | Vertical differentiation, Ambiguous consumer tastes, Ambiguous demand, Ambiguity aversion |
| JEL: | C72 D43 L13 D8 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2023-20&r=upt |
| By: | Hung Tran; Tien Mai |
| Abstract: | In many choice modeling applications, people demand is frequently characterized as multiple discrete, which means that people choose multiple items simultaneously. The analysis and prediction of people behavior in multiple discrete choice situations pose several challenges. In this paper, to address this, we propose a random utility maximization (RUM) based model that considers each subset of choice alternatives as a composite alternative, where individuals choose a subset according to the RUM framework. While this approach offers a natural and intuitive modeling approach for multiple-choice analysis, the large number of subsets of choices in the formulation makes its estimation and application intractable. To overcome this challenge, we introduce directed acyclic graph (DAG) based representations of choices where each node of the DAG is associated with an elemental alternative and additional information such that the number of selected elemental alternatives. Our innovation is to show that the multi-choice model is equivalent to a recursive route choice model on the DAG, leading to the development of new efficient estimation algorithms based on dynamic programming. In addition, the DAG representations enable us to bring some advanced route choice models to capture the correlation between subset choice alternatives. Numerical experiments based on synthetic and real datasets show many advantages of our modeling approach and the proposed estimation algorithms. |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2306.04606&r=upt |
| By: | Galizzi, Matteo M (Department of Psychological and Behavioural Science, and LSE Behavioural Lab, London School of Economics and Political Science, UK); Godager, Geir (Department of Health Management and Health Economics); Li, Jing (School of Pharmacy, University of Washington, USA); Linnosmaa, Ismo (Department of Health and Social Management, University of Eastern Finland and Finnish Institute for Health and Welfare (THL), Finland); Tammi, Timo (Faculty of Social Sciences and Business Studies, University of Eastern Finland, Joensuu, Finland); Wiesen, Daniel (Department of Healthcare Management, and Center for Social and Economic Behavior (C-SEB), University of Cologne, Germany) |
| Abstract: | We propose a comprehensive overview of the main theoretical notions and empirical findings on altruism among physicians and other healthcare providers. While altruism in the behavioral and experimental economics literature is typically defined as a deviation from purely self-interested behavior, the theoretical health economics literature embeds the notion of physician altruism within the doctor–patient relationship. The altruism of physicians is typically defined as the weight in the doctor’s utility function attached to patient’s health benefits, besides the self-interested monetary considerations. We broadly group the empirical evidence into three main categories of evidence: evidence from (i) survey and interview data, (ii) prescriptions records, and (iii) behavioral experiments. Across each of those groups of studies and different methods, the evidence generally supports the theoretical notion that physicians behave ‘altruistically’ in their healthcare decisions. Some studies indicate, however, considerable heterogeneity in physicians’ altruistic preferences. |
| Keywords: | Altruism; healthcare providers; experimental evidence; structural estimation |
| JEL: | C91 D03 I10 |
| Date: | 2023–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oslohe:2023_004&r=upt |
| By: | Huang, Chenchen; Luo, Di; Mukherjee, Soumyatanu; Mishra, Tapas |
| Abstract: | Environmental risk (ER) has become increasingly crucial in international business, and firms endeavor to integrate environmental risk management (ERM) into business strategies. Examining a sample of cross-border mergers and acquisitions (M&As) and alliances conducted by US firms from 39 host countries over the last two decades, we show that US firms tend to prefer to choose cross-border M&As over alliances when the ER of foreign partners is high, consistent with the prediction of a mean-variance utility model. The propensity towards M&As is amplified by US firms’ corporate governance quality, financial flexibility, and adherence to the host-country’s sustainability disclosure reforms. Further, US firms experience high announcement abnormal returns when they select M&A deals rather than alliances to manage high ER from foreign partners. Overall, our study provides novel insights into ERM in firms’ decision-making around international expansion. |
| Keywords: | Cross-border mergers and acquisitions; strategic alliances; corporate social responsibility; environmental risk |
| JEL: | D81 G34 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117591&r=upt |
| By: | Irenaeus Wolff |
| Abstract: | Strategic behavior oft‰en diverges from Nash-equilibrium, in particular in unexperienced play. I provide data from a class of simple discoordination games and show that none of the popular models of behavioural game theory predicts the predominant aggregate choice patt‹ern. And yet, Noisy Introspection (Goeree and Holt, 2004) readily accounts for about half of the individual observations. Th‘e reason for the apparent paradox and the mismatch of the aggregate data and the models is a disregarded behavioural type that makes up about 25% of the population. Th‘ese 25% hold beliefs that peak in the centre of the option set and that are roughly symmetric. In addition, the players show a more heuristic process translating their belief into actions, as their choices cannot be explained readily by quantal responding. Th‘e behavioural patt‹ern of a ‘centered belief’ in connection with boundedly-rational decision-making is present also in another prominent game from the literature on behavioural game theory, the 11–20 game. Finally, I show that classifying players as ‘heuristic centered-belief types’ by one game’s beliefs has predictive power for behaviour in the other game. |
| Keywords: | Nash-equilibrium, quantal-response equilibrium, level-k, cognitive hierarchy, salience theory, noisy introspection, central-tendency bias. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:twi:respas:0128&r=upt |
| By: | Frédéric Koessler (HEC Paris - Ecole des Hautes Etudes Commerciales, GREGHEC - Groupement de Recherche et d'Etudes en Gestion - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique); Marieke Pahlke (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, PJSE - Paris Jourdan Sciences Economiques - 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) |
| Abstract: | We use a notion of maxmin self-confirming equilibrium (MSCE) to study the optimal design of players' feedbacks about others' behavior in games with ambiguity averse players. Coarse feedbacks shape strategic uncertainty and can therefore modify players' equilibrium strategies in an advantageous way. We characterize MSCE and study the equilibrium implications of coarse feedbacks in various classes of games. We show how feedbacks should be optimally designed to improve contributions in generalized volunteer dilemmas and public good games with strategic substitutes, strategic complements, or more general production functions. We also study games with negative externalities and strategic substitutes such as Cournot oligopolies. In general, perfect and no feedbacks are suboptimal. Some results are extended to α-maxmin preferences. |
| Keywords: | Self-confirming equilibrium, Ambiguity aversion, Information feedback, Strategic uncertainty, Public good games, Volunteer dilemma |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04039083&r=upt |
| By: | Jay Armas; Wout Merbis; Janusz Meylahn; Soroush Rafiee Rad; Mauricio J. del Razo |
| Abstract: | Cooperative dynamics are central to our understanding of many phenomena in living and complex systems, including the transition to multicellularity, the emergence of eusociality in insect colonies, and the development of full-fledged human societies. However, we lack a universal mechanism to explain the emergence of cooperation across length scales, across species, and scalable to large populations of individuals. We present a novel framework for modelling cooperation games with an arbitrary number of players by combining reaction networks, methods from quantum mechanics applied to stochastic complex systems, game theory and stochastic simulations of molecular reactions. Using this framework, we propose a novel and robust mechanism based on risk aversion that leads to cooperative behaviour in population games. Rather than individuals seeking to maximise payouts in the long run, individuals seek to obtain a minimum set of resources with a given level of confidence and in a limited time span. We explicitly show that this mechanism leads to the emergence of new Nash equilibria in a wide range of cooperation games. Our results suggest that risk aversion is a viable mechanism to explain the emergence of cooperation in a variety of contexts and with an arbitrary number of individuals greater than three. |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2306.05971&r=upt |
| By: | Yurong Chen; Qian Wang; Zhijian Duan; Haoran Sun; Zhaohua Chen; Xiang Yan; Xiaotie Deng |
| Abstract: | In online ad markets, a rising number of advertisers are employing bidding agencies to participate in ad auctions. These agencies are specialized in designing online algorithms and bidding on behalf of their clients. Typically, an agency usually has information on multiple advertisers, so she can potentially coordinate bids to help her clients achieve higher utilities than those under independent bidding. In this paper, we study coordinated online bidding algorithms in repeated second-price auctions with budgets. We propose algorithms that guarantee every client a higher utility than the best she can get under independent bidding. We show that these algorithms achieve maximal coalition welfare and discuss bidders' incentives to misreport their budgets, in symmetric cases. Our proofs combine the techniques of online learning and equilibrium analysis, overcoming the difficulty of competing with a multi-dimensional benchmark. The performance of our algorithms is further evaluated by experiments on both synthetic and real data. To the best of our knowledge, we are the first to consider bidder coordination in online repeated auctions with constraints. |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2306.07709&r=upt |
| By: | Luc Arrondel (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, PJSE - Paris Jourdan Sciences Economiques - 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); Fabrice Etilé (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, PJSE - Paris Jourdan Sciences Economiques - 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) |
| Abstract: | La psyché des individus est-elle susceptible de changer pendant les « crises » ? Ou inversement, pour paraphraser Stigler et Becker (1977), les préférences individuelles sont-elles « solides comme un roc », en d'autres termes, stables temporellement ? Même si théoriquement, les économistes privilégient la stabilité des préférences à l'instabilité, savoir si des « chocs », qu'ils soient démographiques, sanitaires, naturels, conflictuels ou économiques, sont susceptible de modifier les paramètres de goût des individus et en conséquence leurs comportements, est une question importante en matière de politique publique. De nombreux travaux empiriques cherchent aujourd'hui à tester si les préférences évoluent ou non dans le temps, ou encore si elles sont durablement modifiées par des événements de la vie ou des chocs structurels auxquels sont confrontés les individus. Les conclusions dépendent de l'origine des chocs, de la méthodologie adoptée pour mesurer les préférences et de la nature des questions posées. Le choc de la pandémie du Covid-19 de 2020 est une nouvelle opportunité pour étudier cette question de la stabilité des goûts. Il existe déjà de nombreuses études qui ont analysé l'impact de la crise du Covid sur les épargnants mais qui n'aboutissent à aucun consensus sur le sens de l'impact de la crise sanitaire sur les préférences. Pour la France, les traitements statistiques réalisés ici à partir de l'enquête Pat€r 2020 montrent plutôt une stabilité des préférences vis-à-vis du risque : le « grand confinement » n'aurait ainsi eu que peu d'impact sur les préférences de l'épargnant. |
| Keywords: | Préférence de l'épargnant, Aversion au risque, Choc, Demande d'actions |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04075720&r=upt |
| By: | Tobias Schütze; Philipp C. Wichardt; Philipp Christoph Wichardt |
| Abstract: | Many environment related public goods require investment of time or effort rather than simply money. Yet, most experimental studies on public good games focus on a distribution of money. In the present paper, we report results from an experiment (N=181) comparing an effort based public goods game (both in gain/loss frame) to a standard (gain/loss) public goods game. We find lower average contributions and more free-riders in the effort treatments. These differences are highly significant statistically and in terms of effects size; the most notable effect showing for men in the loss frame (comparing standard vs. effort, contributions drop from 76.7% to 17.0%, free-riders increase from 8.3% to 82.6%, full-contributors drop from 50.0% to 13.0%). The findings suggest that the provision of environmental public goods faces more impediments than common experimental findings indicate. Moreover, they suggest that especially men become more self-focused when required to mitigate a loss with effort. Given that many environmental public goods are about avoiding losses by taking action and that most political decision makers are still men, the latter result seems to be relevant from a policy perspective. |
| Keywords: | public goods, real effort, climate change, loss aversion, gender effects |
| JEL: | C91 D91 H41 Q54 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10444&r=upt |
| By: | Guido Ascari; Sophocles Mavroeidis; Nigel McClung |
| Abstract: | Standard rational expectations models with an occasionally binding zero lower bound constraint either admit no solutions (incoherence) or multiple solutions (in- completeness). This paper shows that deviations from full-information rational ex- pectations mitigate concerns about incoherence and incompleteness. Models with no rational expectations equilibria admit self-confirming equilibria involving the use of simple mis-specified forecasting models. Completeness and coherence is restored if ex- pectations are adaptive or if agents are less forward-looking due to some information or behavioral friction. In the case of incompleteness, the E-stability criterion selects an equilibrium. |
| Keywords: | incompleteness; incoherence; expectations; zero lower bound |
| JEL: | C62 E4 E52 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:784&r=upt |
| By: | Penn, Jerrod; Howard, Gregory E.; Hu, Wuyang |
| Keywords: | Environmental Economics and Policy, Risk and Uncertainty, Research Methods/Statistical Methods |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea22:335998&r=upt |
| By: | Fiechter, Chad; Kuethe, Todd; Zhang, Wendong |
| Abstract: | The rational expectation hypothesis posits that agents use all information efficiently in forming expectations. In farmland value expectations the hypothesis of efficient incorporation of information has been rejected. Traditionally, a rejection of rationality implies agents are irrational. However, models of information rigidity, like the Sticky and Noisy Information Models, suggest that a rational agent may face challenges in incorporating all information efficiently. We find evidence of information rigidities in the expectations of Iowa farmland values from 1964 - 2021. We also find that information rigidities do not fully explain rejections of rationality, and that the degree of information rigidity is heterogeneous for various geographic regions and during periods of high and low interest rate volatility. |
| Date: | 2023–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202306131414240000&r=upt |