|
on Utility Models and Prospect Theory |
| By: | Graham L Giller |
| Abstract: | An analytical solution to single-horizon asset allocation for an investor with a piecewise-linear utility function, called herein the "budget threshold utility, " and exogenous position limits is presented. The resulting functional form has a surprisingly simple structure and can be readily interpreted as representing the addition of a simple "risk cost" to otherwise frictionless trading. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.11666 |
| By: | Safal Raman Aryal |
| Abstract: | Standard decision theory seeks conditions under which a preference relation can be compressed into a single real-valued function. However, when preferences are incomplete or intransitive, a single function fails to capture the agent's evaluative structure. Recent literature on multi-utility representations suggests that such preferences are better represented by families of functions. This paper provides a canonical and intrinsic geometric characterization of this family. We construct the \textit{ledger group} $U(P)$, a partially ordered group that faithfully encodes the native structure of the agent's preferences in terms of trade-offs. We show that the set of all admissible utility functions is precisely the \textit{dual cone} $U^*$ of this structure. This perspective shifts the focus of utility theory from the existence of a specific map to the geometry of the measurement space itself. We demonstrate the power of this framework by explicitly reconstructing the standard multi-attribute utility representation as the intersection of the abstract dual cone with a subspace of continuous functionals, and showing the impossibility of this for a set of lexicographic preferences. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.07991 |
| By: | Avner Seror |
| Abstract: | We study choice among lotteries in which the decision maker chooses from a small library of decision rules. At each menu, the applied rule must make the realized choice a strict improvement under a dominance benchmark on perceived lotteries. We characterize the maximal Herfindahl-Hirschman concentration of rule shares over all locally admissible assignments, and diagnostics that distinguish rules that unify behavior across many menus from rules that mainly act as substitutes. We provide a MIQP formulation, a scalable heuristic, and a finite-sample permutation test of excess concentration relative to a menu-independent random-choice benchmark. Applied to the CPC18 dataset (N=686 subjects, each making 500-700 repeated binary lottery choices), the mean MRCI is 0.545, and 64.1% of subjects reject random choice at the 1% level. Concentration gains are primarily driven by modal-payoff focusing, salience-thinking, and regret-based comparisons. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.02964 |