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on Utility Models and Prospect Theory |
| By: | Michele Crescenzi |
| Abstract: | An axiomatic characterization of Nash equilibrium is provided for games in normal form. The Nash equilibrium correspondence is shown to be fully characterized by four simple and intuitive axioms, two of which are inspired by contraction and expansion consistency properties from the literature on abstract choice theory. The axiomatization applies to Nash equilibria in pure and mixed strategies alike, to games with strategy sets of any cardinality, and it does not require that players' preferences have a utility or expected utility representation. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.03930 |
| By: | Marcus Pivato (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | In recent work, the author has developed a general category-theoretic framework for decision theory. This paper applies this to the category of orthomodular lattices. Every Boolean algebra is an orthomodular lattice, so this yields a new ("syntactic") model of decision-making with classical uncertainty. The lattice of closed subspaces of a Hilbert space is also an orthomodular lattice, so this also yields a new model of decision-making with quantum uncertainty. |
| Keywords: | syntactic decision theory Boolean algebra quantum uncertainty, syntactic decision theory, Boolean algebra, quantum uncertainty |
| Date: | 2025–12–11 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:hal-05398789 |
| By: | Hiroki Yamamichi |
| Abstract: | Turnpike theorems state that if an investor's utility is asymptotically equivalent to a power utility, then the optimal investment strategy converges to the CRRA strategy as the investment horizon tends to infinity. This paper aims to derive the convergence rates of the turnpike theorem for optimal feedback functions in stochastic factor models. In these models, optimal feedback functions can be decomposed into two terms: myopic portfolios and excess hedging demands. We obtain convergence rates for myopic portfolios in nonlinear stochastic factor models and for excess hedging demands in quadratic term structure models, where the interest rate is a quadratic function of a multivariate Ornstein-Uhlenbeck process. We show that the convergence rates are determined by (i) the decay speed of the price of a zero-coupon bond and (ii) how quickly the investor's utility becomes power-like at high levels of wealth. As an application, we consider optimal collective investment problems and show that sharing rules for terminal wealth affect convergence rates. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.00346 |
| By: | Benjamin C\^ot\'e; Ruodu Wang; Qinyu Wu |
| Abstract: | Risk aversion and insurance are two prominent and interconnected concepts in economics and finance. To explore their fundamental connection, we introduce risk-insurance parity, which associates various classes of insurance contracts with different notions of risk aversion. We show that the classic notions -- both weak and strong -- of risk aversion can be characterized by propensity to different classes of insurance contracts, generalizing recent results on propensity to full, proportional, and deductible-limit contracts in the literature. We obtain full characterizations of the classes of insurance indemnity functions that correspond to weak and strong risk aversion. Risk-insurance parity allows us to define two new notions of risk aversion, between weak and strong, characterized by insurance propensity to deductible-only and limit-only contracts respectively. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.09208 |
| By: | Leiashvily, Paata |
| Abstract: | On the basis of dialectical analysis of basic economic categories a new understanding of economic value, price formation and general equilibrium has been proposed. Market economy appears as the form of a complex, non-linear, functionally closed and causally open system of economic actions. Such systems have a number of unique properties that are well studied by second-order cybernetics. The self-organization of a market economy is carried out through the recursive processes. Recursive processes in the economic system, as well as in other complex nonlinear dynamical systems, generate "eigenvalues" ("fixed points"). These "eigenvalues" are the equilibrium prices and quantities of goods to which through the recursive processes tend the actual prices and quantities, thus providing a tendency to the general equilibrium. However, due to constant influence on the system of random external factors, the general equilibrium is never achieved. On the base of created model the hidden relationships among the gross profit, gross saving, gross investment and gross consumption in debt, as well as the relationships among the other economic parameters are revealed. |
| Keywords: | methodology, general economic equilibrium, value, pricing, utility, costs, production, consumption, profit, saving, investment |
| JEL: | B41 D50 E21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126765 |
| By: | Adib Rahman (University of Hawaii); Liang Wang (University of Hawaii) |
| Abstract: | We investigate the effects of central bank digital currency (CBDC) issuance in an economy where individuals can evade taxes by using cash. Our tractable model features agent heterogeneity with unobservable idiosyncratic shocks and voluntary exchange, where CBDC and cash compete as payment methods. CBDC's transparency enables governments to collect a labor tax that proves non-distortionary in our quasi-linear environment. Agents with higher marginal utility voluntarily pay fixed fees to access interest-bearing CBDC when their debt constraints bind, allowing the implementation of optimal policy with strictly positive inflation and nominal interest rates. We demonstrate how CBDC enables redistribution between agent types that is not possible in cash-only economies. We conjecture that an optimal CBDC policy involves higher nominal interest rates and lower inflation compared to cash regimes. By reducing tax evasion incentives, the introduction of CBDC can increase both output and aggregate welfare. |
| Keywords: | Cash, CBDC, Labor Tax, Tax Evasion, Monetary Policy |
| JEL: | E42 E58 H21 H26 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:hai:wpaper:202505 |
| By: | Louis Soumoy; Ibrahim Abada; Andreas Ehrenmann; Olivier Massol |
| Keywords: | Capacity expansion, risk aversion, risk trading, complete or incomplete risk market, coherent risk measure, financial twins |
| JEL: | D81 C72 C73 Q41 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:enp:wpaper:eprg2525 |
| By: | Mpinda, Moitlamo Ookeditse |
| Abstract: | Smallholder maize farmers in Botswana experience major constraints from climatic variability, resulting in low production and productivity. The climate-smart agricultural (CSA) practices are promising options to increase productivity and income, but there is poor adoption due to some constraints. The objective of this study was to identify the CSA practices practiced by farmers, analyse factors that influence the adoption of these practices, and assess the impact on productivity and income. Based on utility maximization and innovation diffusion theories, a multistage sampling technique was utilised for data collection from 384 maize farmers by using semi-structured questionnaires. Descriptive and inferential statistics, including, multivariate probit model (MVP) for adoption factors and the multinomial endogenous switching regression model (MESR) of impact, were used in the analysis. We analysed four main CSA practices: crop rotation, maize-legume diversification, improved seeds, and fertiliser application. Results showed that maize-legume intercropping was the highest practice adopted (70%), and application of fertilisers ranked the lowest (55%). The interviewed farmers were mostly women (60 %) and mainly between 36 and 50 years of age, and with more than 10 years of farming experience. Farm experience, education, group membership, distance to market, and land size were the important determinants for CSA adoption. In addition, the selection of particular practice combinations was affected by education, farm size, livestock holding information sources and channels to get to market, as well as land tenure types. The primary finding of the study is that an integrated combination of dependent CSA practices has a positive impact on maize productivity and income. These findings highlight the critical need for governments and development organisations to use innovative and tailored extension services to promote the implementation of CSA practices among smallholder farmers. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aesthe:373396 |
| By: | Antonio Jose, Alfazema |
| Abstract: | This article aims to study risk aversion, risk exposure and value, risk exposure management, and organizational aspects, with the objective of analyzing the relationship between risk aversion, risk exposure, and organizational value in Mozambique, highlighting effective risk exposure management strategies for the sustainability of companies in the local context. The article discusses aspects of the different perceptions that reveal the organization's degree of vulnerability to adverse events, both external, such as economic and political changes, and internal, such as operational failures and problems in the supply chain. It deepens the understanding of the relationship between risk aversion, risk exposure, and value creation, highlighting how companies can use advanced management practices to mitigate risks and transform uncertainties into opportunities. It is important to mention that effective risk exposure management is essential for Mozambican companies to balance risk aversion with the pursuit of opportunities that drive growth. It was found that, with regard to risk mitigation practices, some companies use insurance, currency hedge contracts, and market diversification strategies to protect their assets and ensure financial predictability. Strengthening governance and promoting an organizational culture focused on innovation and risk mitigation are fundamental to transforming uncertainties into competitive advantages. |
| Keywords: | Risk aversion; Risk exposure; Risk Management |
| JEL: | G11 |
| Date: | 2025–11–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126759 |