|
on Utility Models and Prospect Theory |
| By: | Kaname Miyagishima; Kensei Nakamura |
| Abstract: | In this paper, we study criteria for social evaluation of resource distributions under risk when individuals have expected utility preferences but their utility functions are interpersonally non-comparable. In particular, we focus on cautious evaluation with respect to ex-post distributions. As a key rationality axiom, we adopt Negative Certainty Independence, introduced by Dillenberger (2010). Using this axiom together with Pareto conditions that are compatible with both the rationality axiom and ex-post equity, we characterize a class of social criteria called Cautious Equally Distributed Equivalent (CEDE) criteria. These criteria evaluate risky situations by the lowest certainty equivalent over a set of social utility functions constructed from individual utility functions. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.13613 |
| By: | Yosuke Hashidate |
| Abstract: | Exponential Second-Order Expected Utility (SOEU) underlies the entropic approach to model uncertainty. This paper explores in what sense that functional form is essential. In the misspecification-robust Smooth Ambiguity criterion, let a single parameter govern both the model-level robustness and the ambiguity-averse aggregation across models Cerreia-Vioglio, Hansen, Maccheroni, and Marinacci (2026). The two-layer criterion then equals Exponential SOEU for every compact set of models and every second-order prior, with the Bayesian predictive measure as the baseline. The main results are converses. On the aggregator side, matched curvature is \emph{necessary}: at a fixed curvature no other continuous, strictly increasing aggregator delivers the reduction, and with mismatched curvature there are a model set and a prior for which no single-layer entropic value, at any curvature and any baseline, reproduces the criterion. On the cost side, within the power-divergence family, which contains chi-squared and reverse Kullback--Leibler (KL), only KL has a dual of the log-sum-exp form, and the other members first depart from it at the third cumulant. Finally, the value dual to Exponential SOEU is a robust-control value: it is motivated by Rational Inattention, but no Bayes-plausible information-acquisition problem about a fixed act generates it. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.26552 |
| By: | Tae Ung Gang; Donghan Kim |
| Abstract: | We study finite-horizon portfolio optimization with proportional transaction costs and trading opportunities arriving at the jump times of a Cox process. Borrowing and short-selling are prohibited, while utility functions need not be concave, increasing, or differentiable. The admissible class includes differentiable utilities with asymptotic elasticity greater than or equal to one. The associated Hamilton--Jacobi--Bellman equation is semi-linear and nonlocal, with control entering only through a zeroth-order term. We show that the normalized equation admits a unique bounded solution that is continuous in all state variables and classical in time and log-price. The proof combines a contraction argument with interior Schauder estimates, and verification identifies the value function and yields an optimal Markovian feedback strategy. Numerical examples with non-concave utilities exhibit, at fixed time and pre-trade wealth, multiple intervals associated with the same trading action, departures from the usual buy--no-trade--sell ordering, and abrupt switches in the optimal post-trade risky weight. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.00998 |
| By: | Taotao He; Runfa Hu |
| Abstract: | We study the computational complexity of peak-oriented rationalizability, a survey based revealed-preference test introduced by Seror (2026). We provide a polynomial-time algorithm for testing rationalizability and recovering a utility function, establishing that peak-oriented preference elicitation is computationally tractable. In contrast, we show that computing the peak-oriented Houtman-Maks index is NP-hard. These results delineate the precise computational boundaries of peak-oriented revealed-preference analysis. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.30042 |
| By: | Kemal Ozbek |
| Abstract: | This paper develops a model of identifiable smooth ambiguity in a finite-state Anscombe-Aumann framework in which ambiguity perception and the ambiguity-attitude representation may depend on the act's endogenous certainty-equivalent utility level. The framework separates two sources of utility-level dependence that standard smooth-ambiguity models hold fixed. Neutral-transfer experiments within revealed cells recover conditional beliefs, while compensation experiments across cells recover cell weights and locally revealed ambiguity-attitude scales. These objects have distinct behavioral content. After the within-level structure is extended globally, ambiguity perception is identified at each certainty-equivalent level, whereas variation in admissible level-specific global attitude indices need not by itself reflect behaviorally identified variation in ambiguity attitude. Cross-level restrictions determine when the locally revealed attitude scales can instead be represented by one common global ambiguity-attitude index. The baseline characterization yields a doubly implicit smooth-ambiguity representation with level-specific perception and potentially level-specific global attitude indices. Requiring one common ambiguity-attitude index gives an intermediate stable-attitude model in which only perception may vary; imposing perception stability as well yields standard identifiable smooth ambiguity within the maintained full-support, neutrally separated, fixed-partition environment with at least three revealed cells. The contribution is therefore a behavioral decomposition of utility-level dependence in smooth ambiguity into separately revealed perception and attitude components. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.26964 |
| By: | Ziran Liu |
| Abstract: | Bernheim, Braghieri, Mart\'inez-Marquina, and Zuckerman (2021, American Economic Review) develop a theory of chosen preferences and conjecture convergence to pure worldviews at low mindset flexibility. We show that the (original) conjecture fails: with arbitrarily many worldviews, a common-value action sustains mixed worldviews in every stationary equilibrium from a relatively open set of initial worldviews, even when all pure worldviews are absorbing. However, finite linear programs characterize a sufficient persistence condition. Conversely, mixed accumulation points require shared valuation maxima. If each implementable action has a unique maximizing evaluator, every existing stationary equilibrium converges to purity for all interior flexibility and discount parameters. Experienced utility converges without uniqueness. In existing equilibria, small payoff perturbations preserve compromise over fixed horizons with high probability. Strictly tailored worldviews yield existence and a one-step equilibrium characterization at sufficiently low mindset flexibility; weak implementation can preclude stationary pure-strategy existence. The persistence and convergence results extend to stationary randomization. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.19316 |
| By: | Constantine Sorokin; Eyal Winter |
| Abstract: | We study a war of attrition in which each party chooses how far to escalate before conceding. If neither concedes before escalation reaches a random disaster threshold, both receive nothing; otherwise the confrontation ends peacefully. When the parties are ex-ante symmetric and their benefits are independent, improving both parties' private information about their own stakes raises both the probability of peace and each party's ex-ante equilibrium utility. The result holds for every nontrivial mean-preserving spread of posterior values---each party's expected benefit from prevailing given its private information. Higher stakes work in the opposite direction: a first-order stochastic increase in posterior values induces greater persistence, lowers the probability of peace, and can reduce both parties' ex-ante utilities. Starting from symmetry, a sufficiently small improvement in only one party's information also promotes peace; its first-order effect is exactly half that of improving both parties' information. At an asymmetric starting point, however, even a small one-sided improvement can instead lower the probability of peace. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.12210 |
| By: | Hanping Chen; Zeqi Wu |
| Abstract: | This paper investigates the construction of moment restrictions in dyadic network formation models with unobserved individual heterogeneity under nontransferable utility. Using observed links and covariates from five-node pentads, we construct moment restrictions that do not depend on individual fixed effects. For a broad class of covariate specifications, the construction is minimal in the sense that it uses the least possible number of nodes and dyads. Based on these moment restrictions, we propose the pentad-GMM estimator. We establish asymptotic normality of the pentad-GMM estimator in dense, sparse, and ultra-sparse network regimes, with regime-specific convergence rates and asymptotic variances. These results provide a basis for inference across all three regimes. To make our method computationally efficient, we develop an algorithm that reduces the computational cost of the estimator from na\"ive \(O(N^5)\) to \(O(N^3)\). We apply the proposed method to an academic-discussion network, and find academic homophily and a positive association between link formation and a potential partner's openness to different perspectives. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.12545 |
| By: | Xiaotie Deng; Ningyuan Li |
| Abstract: | We study strategic disclosure of the action space in principal-agent contracting, where an agent selects a disclosed action set to shape the principal's perception of her capabilities before contract design. Unaware of the strategic disclosure, the principal designs a revenue-optimal contract as if the disclosed action set were complete and accurate. We consider two variants distinguished by cost verifiability. When costs are unverifiable, the agent can extract the entire first-best surplus, leaving the principal with zero revenue. When costs are verifiable, we characterize the agent's optimal disclosure strategy in binary-outcome settings and, more generally, when the principal is restricted to linear contracts, reducing the agent's problem to a two-variable convex optimization problem. We prove that the agent can secure utility of at least a $1/e$ fraction of the first-best surplus, which also yields a $1/e$ welfare guarantee under optimal disclosure. While the principal's revenue can be arbitrarily small compared to the first-best surplus, when the ratio of maximum to minimum expected reward among non-null base actions is at most $L$, we establish a revenue guarantee of $\Theta(1/\log L)$ relative to the first-best surplus. We also compare utilities and welfare under strategic disclosure with their counterparts in the canonical model. Finally, we extend the agent's $1/e$ utility guarantee to general outcome spaces without restricting the principal to linear contracts. Our results show how strategic action-space disclosure changes the distribution of surplus while preserving a constant-factor welfare guarantee under the agent's optimal disclosure. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.25410 |
| By: | Jarrod Burgh; Emerson Melo |
| Abstract: | This paper studies risk-averse treatment allocation when individuals self-select into treatment based on unobserved characteristics. We develop a framework that combines the marginal treatment effect approach to endogenous selection with a general class of coherent risk measures that capture distributional preferences over welfare outcomes. We show that the planner's problem admits equivalent interpretations in terms of uncertainty aversion, distributional robustness, and worst-case welfare. For law-invariant coherent risk measures, we derive a Kusuoka representation that expresses the planner's objective as a weighted evaluation of different regions of the welfare distribution and characterize the resulting optimal allocation rule. We further establish finite-sample regret guarantees for empirical risk-averse policy learning, showing how the statistical difficulty of learning a policy depends on the planner's sensitivity to adverse welfare outcomes. The framework nests the risk-neutral policy learning model of \cite{Kiatagawa_Tetenov_2018} as a special case. An application to the \cite{Card1995} college proximity data demonstrates that incorporating risk aversion can lead to economically meaningful changes in optimal college admission policies. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.30617 |
| By: | Guglielmo Maria Caporale; Luis Alberiko Gil-Alana; Alex Medina Sosa |
| Abstract: | This paper examines whether four AI events between 2022 and 2025 - ChatGPT, GPT-4, the EU AI Act vote, and DeepSeek - changed the behaviour of fourteen US-listed stocks. The focus of the analysis is on two utilities that signed power purchase agreements with large AI companies, Constellation Energy and Vistra, which are compared with utilities that did not. The degree of persistence of the price of each stock is estimated in the periods around the events to establish whether it has changed. Volatility changes and whether the market reaction grows or fades across the events are also investigated. The results suggest that the events considered do not affect the degree of persistence of prices; however, they have an impact on their volatility for almost every stock. Among the utilities, only Constellation and Vistra exhibit a persistence shift that survives an adjustment for developments in the wider market, whilst utilities without power purchase agreements do not. Further, the response increases from one event to the next. A specific channel is identified: AI news moves a utility's price mainly when the firm has a contract to sell power to an AI company. However, this evidence is suggestive rather than conclusive. |
| Keywords: | Artificial Intelligence (AI), fractional integration, conditional variance, AI-power demand, utility stocks, event studies, structural breaks |
| JEL: | C22 C58 G14 Q41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13001 |
| By: | Bugarčić, Milica; Hanić, Hasan |
| Abstract: | The paper presents the results of a meta-analysis of empirical literature focused on the study of behavioral biases in financial decision-making. The findings indicate that biases such as loss aversion, present bias, status quo bias, overconfidence, and herding systematically shape both individual and collective financial behavior. Their influence is evident across diverse institutional and cultural contexts, confirming that behavioral deviations are structural rather than incidental features of economic behavior. The study highlights the need to integrate longitudinal and neuroeconomic approaches to achieve a deeper understanding of the interaction between cognitive, emotional, and contextual factors in decision-making processes. By incorporating psychological dimensions into economic theory, behavioral economics provides a more comprehensive and realistic framework for interpreting market dynamics and enhancing the quality of financial decision-making. |
| Keywords: | behavioral economics, behavioral finance, financial decion-making, cognitive biases |
| JEL: | D14 G53 I22 G41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esconf:343874 |
| By: | Shuping Shi (Macquarie University); Jun Yu (University of Macau); Chen Zhang (Sun Yat-sen University) |
| Abstract: | Continuous time models provide a stronger benchmark for realized volatility forecasting than the discrete time models standard in empirical finance. Using 111 U.S. equities and ETFs, we compare continuous time fractional processes, ARFIMA, and HAR models on a common footing. Three families perform similarly at the daily horizon but separate at longer horizons, where continuous time models lead statistically and economically. The ranking reflects how each model balances recent volatility against its long run level. The continuous time advantage grows with volatility persistence and diminishes as jumps account for more variation. |
| Keywords: | Realized volatility, Continuous time models, Discrete time models, Forecasting, Economic utility |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:boa:wpaper:202648 |
| By: | Kurz, Konstantin |
| Abstract: | Entrepreneurial and nonentrepreneurial life is about making decisions. For centuries, the process of making such decisions was viewed as purely rational and cognitive – an understanding that was long echoed in the entrepreneurship literature. However, at the beginning of this millennium, this non-emotional, utility-maximizing decision-making concept was challenged by the rise of manifold studies from social psychology and neuroscience providing empirical evidence for the role of emotions in decision making. These findings have then also been incorporated into the literature on entrepreneurship, which has begun to capture entrepreneurial action as an emotional journey. Yet, little is known empirically about the interplay of these emotional and cognitive processes during entrepreneurial decision making. Inspired by multiple calls for research on this topic, this dissertation investigates when emotions facilitate or impair effective entrepreneurial and ethical decision making. For this, this manuscript summarizes three studies, each with a distinct, unique, real-world dataset. The first research setting analyzes the effect of emotions relived through empathy on the level of entrepreneurial action in the form of new product launches. The empirical analysis on 4, 425 real entrepreneurs reveals that relived emotions affect these entrepreneurs’ new product launches in an inverted U-shaped relationship, suggesting a novel “too-much-of-a-good-thing” logic for entrepreneurial empathy. The second study investigates the effect of emotions on the resource acquisition effectiveness of survival-driven crowdfunding campaigns, an entirely new campaign type. In this study, we demonstrate that for this new campaign type, negative emotional tone strategies can facilitate resource acquisition, contrasting the thus far prevailing understanding that positive emotional cues are universally beneficial for improving crowdfunding success. Finally, the last study of this dissertation analyzes the rational and emotional motives for sharing electricity during a long-lasting power outage. The empirical results of this third study show that emotional motives play a surprisingly strong role relative to rational factors for facilitating prosocial contribution behavior in such a crisis setting. With these three multifaceted research settings, this dissertation as a whole clearly illustrates the need for close interaction of both cognitive and emotional factors for effective entrepreneurial and ethical decision making. |
| Date: | 2026–09–10 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:162281 |