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on Utility Models and Prospect Theory |
| By: | De Donder, Philippe; Lefèvre, François; Leroux, Marie-Louise; Roquebert, Quitterie |
| Abstract: | This paper investigates how marginal utility varies with health status (e.g. health-state dependence) while allowing this relationship to differ across income levels. Building on the existing literature, we develop a framework that quantifies the income adjustments necessary to maintain individuals’ wellbeing when they become disabled. Using SHARE data, we empirically estimate how health affects the marginal utility of consumption across the income distribution for older adults in Europe. Our results show that health-state dependence is negative among low-income individuals, indicating that their marginal utility of consumption declines when their health worsens. In contrast, at the very top of the income distribution, health-state dependence is positive, implying that marginal utility of consumption rises as health deteriorates. |
| Keywords: | Health-state dependence, Marginal utility of consumption, Income heterogeneity, SHARE; survey |
| JEL: | D12 I1 J14 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131900 |
| By: | Yue Cao; Guohui Guan; Zongxia Liang; Xiaodong Luo |
| Abstract: | This paper studies a singular dividend control problem for a firm with heterogeneous shareholders whose discount rates follow a given distribution. The central planner aggregates expected discounted payoffs using an ambiguity aggregation function $phi$, which captures shareholder heterogeneity and ambiguity attitudes but also leads to time inconsistency. To address this issue, we seek a time-homogeneous equilibrium dividend law characterized by a partition of the state space into waiting and dividend-paying regions. We provide a rigorous mathematical characterization by proving a verification theorem and deriving necessary conditions for the equilibrium law. We then analyze barrier-type equilibria, showing non-existence for a class of aggregation functions that includes power-type and logarithmic aggregation functions, and establishing existence and uniqueness under linear and exponential aggregation. In the linear case, the bounded-rate equilibrium is shown to converge to the singular barrier-type equilibrium as the dividend rate bound tends to infinity. Numerical examples illustrate the effects of discount-rate heterogeneity and ambiguity aversion on the equilibrium barrier. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.25461 |
| By: | Yingshuo Wang; Xian Sun; Yanhang Li; Zhichao Fan; Zexin Zhuang |
| Abstract: | Tabular foundation models achieve strong accuracy on choice prediction tasks, but their predictions often violate the economic logic those tasks require: raising a price can increase predicted demand, implied willingness-to-pay estimates are frequently negative or implausible, and unavailable alternatives receive nonzero probability. We propose a two-stage adapter that takes a foundation model's predicted choice probabilities as a precomputed feature and embeds them inside a multinomial logit's utility. In Stage 1, we fit the multinomial logit's structural coefficients by maximum likelihood with sign constraints; in Stage 2, we freeze those coefficients and fit a small neural correction operating on the foundation model's predictions. We prove that this composition exactly preserves the multinomial logit's marginal rate of substitution, so analytically computable value-of-time becomes a mathematical guarantee rather than an empirical accident. Across three datasets and two foundation models, the adapter gains 6.4 percentage points (pp) of test accuracy on average over the multinomial logit and up to 12.8 pp, maintains 100% cost monotonicity, and produces values of time within the published transportation-economics range on the transportation datasets. Performance degrades gracefully under foundation-model context restriction, retaining at least 6 pp of accuracy gain even at 10% of the original foundation-model context. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.26432 |
| By: | Avner Seror (Aix Marseille Univ, CNRS, AMSE, Marseille, France) |
| 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 rule concentration is 0.545, and 64.1% of subjects show excess rule concentration, rejecting menu-independent random choice at the 1% level. Concentration gains are primarily driven by modal-payoff focusing, salience-thinking, and regret-based comparisons. |
| Keywords: | Behavioral Economics; Decision Theory; Revealed Preference |
| JEL: | D91 D81 C44 |
| Date: | 2026–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:aim:wpaimx:2602 |
| By: | Адилханова Зарина // Adilkhanova Zarina (National Bank of Kazakhstan) |
| Abstract: | В работе представлены эмпирические оценки двух параметров, необходимых для анализа межвременного поведения домохозяйств и торговли: коэффициента относительной степени неприятия риска и эластичности замещения между отечественными и импортными товарами. Коэффициент относительного непринятия риска оценивался на основе опросных данных БНС АСПиР о потреблении и субъективном благополучии домохозяйств Казахстана за период 2017-2024 гг. с применением методов максимального правдоподобия и GMM. Полученные значения находятся в диапазоне 1, 42-1, 66, что свидетельствует о умеренной склонности к риску и согласуется с международной литературой. Эластичность замещения между импортными и отечественными товарами оценивалась с использованием панельных данных по 56 товарам за период с января 2020 по сентябрь 2025 гг., с применением модели с фиксированными эффектами. Коэффициент эластичности цен 0, 18 указывает на низкую степень взаимозаменяемости товаров. // The paper presents empirical estimates of two parameters required for the analysis of intertemporal household behavior and trade dynamics: the coefficient of relative risk aversion and the elasticity of substitution between domestic and imported goods. The coefficient of relative risk aversion was estimated using household survey data from the BNS ASPR, covering consumption and subjective well-being indicators for the period 2017-2024. The estimation employed both Maximum Likelihood and Generalized Method of Moments (GMM) techniques. The estimated values range from 1.42 to 1.66, indicating a moderate degree of risk aversion and broadly consistent with findings reported in the international literature. The elasticity of substitution between imported and domestic goods was estimated using panel data for 56 product categories over the period from January 2020 to September 2025, applying a fixed-effects model. The estimated price elasticity of 0.18 suggests a low degree of substitutability between domestic and imported goods. |
| Keywords: | эластичность Армингтона, коэффициент относительной степени неприятия риска, CRRA, эластичность замещения, Armington elasticity, Constant Relative Risk Aversion, elasticity of substitution |
| JEL: | D12 D81 F14 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:aob:wpaper:76 |
| By: | Jaden Yang Chen; Can Urgun |
| Abstract: | Bandit models typically begin with arms, states, rewards, and transition rules. This paper instead begins with preferences over stopped local contingent schedules: possible unfoldings of a responsibility, project, experiment, or opportunity in its own local time. Behavioral axioms on single schedules characterize a generalized stopping representation with current utility, local discounting, and a broad continuation aggregator. A common-tail compensation axiom then allows calendar time to be priced across schedules. Imposing a tight elapsed-calendar constraint generates a rested generalized bandit and yields index optimality: the index is the shadow price of advancing a local clock. Expected-utility, learning, robust, rank-dependent, Choquet, and Pandora models arise as special cases. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.12044 |
| By: | Gevorg Khandamiryan; Vira Semenova |
| Abstract: | We develop a covariate-assisted approach to partially identified parameters that are solutions to an under-identified system of linear equations with known coefficients. Examples include bounds on treatment effects, models of unemployment with state dependence, choice-theoretic models of IV, and random utility models. The boundary (i.e., support function) of the proposed identified set is represented as an average of intersections of regression functions, aggregated over the covariate distribution. We show that the boundary is a regular parameter, propose asymptotic theory, and demonstrate using an empirical application to Jobs First. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.08359 |
| By: | Galasso, Alberto; Virag, Gabor |
| Abstract: | Motivated by a growing body of empirical evidence documenting overconfidence among litigants, this paper studies the design of judicial mechanisms when defendants hold biased beliefs about their likelihood of conviction. Subjective biases have heterogeneous effects across defendant types and may fundamentally alter the structure of optimal judicial procedures. Relative to the benchmark with unbiased defendants, biased beliefs reduce the benefits of plea offers and, in some cases, the value of offering a menu of trial procedures to screen defendants. Overconfidence does not facilitate surplus extraction; instead, it reduces court welfare while increasing defendants’ expected utility. A calibration of the model using empirical evidence on judicial error rates and litigant overconfidence suggests that these effects are of significant magnitude. |
| JEL: | D82 K41 D91 K40 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21416 |
| By: | Ghosh, Anisha; Otsu, Taisuke |
| Abstract: | Information-theoretic methods recover investors’ subjective beliefs by minimizing the statistical discrepancy between beliefs and the DGP, subject to assets’ Euler constraints. We show that the estimated beliefs converges in probability to its pseudo-true value. Comparing estimators in the Cressie-Read family, we show that the exponential tilting and empirical likelihood estimators produce qualitatively similar estimates of the risk aversion levels and beliefs. The quadratic divergence estimator leads to negative subjective probabilities, implausibly large risk aversion levels, and underestimation of left tail risk. Our results suggest large institutional investors, like pension funds, have countercyclical beliefs about the market return, while extrapolative investors have procyclical beliefs. Our results offer an alternative explanation of the momentum effect in stock returns, help reconcile procyclical beliefs reported in individual investor surveys versus countercyclical beliefs implied by rational expectations representative agent models, and establish the information-theoretic approach as a powerful methodology for the recovery of beliefs. |
| Keywords: | rational expectations; subjective beliefs; pricing kernel; conditioning set; Cressie-Read discrepancy minimization |
| JEL: | C51 G12 G14 |
| Date: | 2026–03–18 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130027 |
| By: | Farbod Ghasemlu |
| Abstract: | We study the fee policy of a liquidity provider (LP) in a constant-product automated market maker (AMM) whose fee can be adjusted continuously, as enabled by programmable hooks. Building on the loss-versus-rebalancing (LVR) framework of Milionis et al. (2022) and its extension to nonzero fees by Milionis et al. (2024), we model the LP's wealth relative to the continuously rebalanced benchmark as a controlled process in which the fee governs two opposing forces: it raises revenue per uninformed trade while discouraging uninformed volume, and it widens the no-arbitrage band, which lowers the rate at which arbitrageurs extract value. Because the fee enters only the drift of relative wealth and never its diffusion, the LP's expected-utility problem reduces to an ergodic control problem whose solution is a pointwise volatility feedback. We prove that the growth-optimal fee is independent of the LP's wealth and of its constant relative risk aversion, that it collapses to a static constant when volatility is constant, and that it is strictly increasing in instantaneous variance, so that the optimal schedule is pro-cyclical. When volatility is stochastic, we characterise the optimal fee through a scalar ergodic Hamilton-Jacobi-Bellman equation and a linear Poisson equation, solved by a finite-difference scheme. We further show that the optimal fee is invariant to price jumps under logarithmic preferences, relate the optimal fee to a stylised model of competition among venues, and treat gas costs through an impulse-control dead-band. In a calibration to liquid large-capitalisation conditions, the optimal dynamic fee weakly dominates every static and volatility-linked heuristic fee on each simulated path, improving the LP's growth rate over the best static fee by a modest but uniformly positive margin, with a dead-band rendering gas costs negligible. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.21769 |