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on Utility Models and Prospect Theory |
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Issue of 2023‒10‒02
five papers chosen by |
| By: | Andrea Loi; Stefano Matta |
| Abstract: | This paper establishes a link between endowments, patience types, and the parameters of the HARA Bernoulli utility function that ensure equilibrium uniqueness in an economy with two goods and two impatience types with additive separable preferences. We provide sufficient conditions that guarantee uniqueness of equilibrium for any possible value of $\gamma$ in the HARA utility function $\frac{\gamma}{1-\gamma}\left(b+\frac{a}{\gamma}x\right)^{1-\gamma}$. The analysis contributes to the literature on uniqueness in pure exchange economies with two-goods and two agent types and extends the result in [4]. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.09347&r=upt |
| By: | Wenpin Tang; David D. Yao |
| Abstract: | We study a mechanism design problem in the blockchain proof-of-stake (PoS) protocol. Our main objective is to extend the transaction fee mechanism (TFM) recently proposed in Chung and Shi (SODA, p.3856-3899, 2023), so as to incorporate a long-run utility model for the miner into the burning second-price auction mechanism $\texttt{BSP}(\gamma)$ proposed in Chung and Shi (where $\gamma$ is a key parameter in the strict $\gamma$-utility model that is applied to both miners and users). First, we derive an explicit functional form for the long-run utility of the miner using a martingale approach, and reveal a critical discontinuity of the utility function, namely a small deviation from being truthful will yield a discrete jump (up or down) in the miner's utility. We show that because of this discontinuity the $\texttt{BSP}(\gamma)$ mechanism will fail a key desired property in TFM, $c$-side contract proofness ($c$-SCP). As a remedy, we introduce another parameter $\theta$, and propose a new $\texttt{BSP}(\theta)$ mechanism, and prove that it satisfies all three desired properties of TFM: user- and miner-incentive compatibility (UIC and MIC) as well as $c$-SCP, provided the parameter $\theta$ falls into a specific range, along with a proper tick size imposed on user bids. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.13881&r=upt |
| By: | Edika Quispe-Torreblanca (University of Oxford; Leeds University Business School); John Gathergood (University of Nottingham); George Loewenstein (Carnegie Mellon University); Neil Stewart (University of Warwick) |
| Abstract: | We introduce attention utility, the hedonic pleasure or pain derived purely from paying attention to information, and diers from the news utility that arises from gaining new information. Two studies document selective attention to good news. The first study examines brokerage account login data to show that investors pay disproportionate attention to already-known positive information on their stocks. Through its effect on logins, this selective attention affects their trading activity. A second experimental study shows that investors are more likely to engage in a paid task that will involve attention to a prior investment if that investment has gained value. |
| Keywords: | information utility; attention; login; investor behavior |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2022-19&r=upt |
| By: | Lodh, Rishab; Dey, Oindrila |
| Abstract: | This paper examines the impact of behavioral factors in propagation of fake news. Using Spence (1978) framework, we find that the perfect Bayesian Nash equilibrium is pooling equilibrium, i.e., fake news producers to mimic actions of true news producer, which is influenced by factors like ideology, awareness, informational utility and fear of missing out information of news- consumers. Interestingly, the chain of fake news can be broken iff degree of awareness is significantly high. A threshold level of awareness level is determined using simulation, beyond which pooling breaks despite of high influence of other factors, which throws light on possible policy interventions. |
| Keywords: | Fake news, Asymmetric Information, Bayesian games, Signaling, Fact checking |
| JEL: | D82 L20 |
| Date: | 2023–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118371&r=upt |
| By: | Sarah Auster (Department of Economics, University of Bonn and CEPR); Christian Kellner (Department of Economics, University of Southampton) |
| Abstract: | We study the effect of ambiguity on timing decisions. An agent faces a stopping problem with an uncertain stopping payoff and a stochastic time limit. The agent is unsure about the correct model quantifying the uncertainty and seeks to maximize her payoff guarantee over a set of plausible models. As time passes and the agent updates, the worst-case model used to evaluate a given strategy can change, creating a problem of dynamic inconsistency. We characterize the stopping behavior in this environment and show that, while the agent’s myopic incentives are fragile to small changes in the set of considered models, the best consistent plan from which no future self has incentives to deviate is robust. |
| Keywords: | Stopping problem, ambiguity, consistent planning |
| JEL: | C61 D81 D83 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:252&r=upt |