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on Utility Models and Prospect Theory |
| By: | Simon Clark (School of Economics, University of Edinburgh) |
| Abstract: | I construct a simple matching model that nests transferable utility, nontransferable utility, and imperfectly transferable utility by showing that if the utility possibility frontier of a matched couple satisfies a homogeneity condition it has a CES form, with the elasticity of substitution sigma a measure of the degree of transferability. Taking sigma as exogenous, I analyse how transferability a§ects sorting and payo§s. Treating social norms as a source of imperfect transferability, I examine the effect of norms about gender roles within the household. |
| Keywords: | Matching, marriage market, imperfectly transferable utility, social norms, gender norms |
| JEL: | C7 D1 D9 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:edn:esedps:314 |
| By: | Evan Piermon; Fernando Payró Chew |
| Abstract: | We consider an analyst whose goal is to identify a subject’s utility function through revealed preference analysis. We argue the analyst’s preference about which experiments to run should adhere to three normative principles: The first, Structural Invariance, requires that the value of a choice experiment only depends on what the experiment may potentially reveal. The second, Identification Separability, demands that the value of identification is independent of what would have been counterfactually identified had the subject had a different utility. Finally, Information Monotonicity asks that more in- formative experiments are preferred. We provide a representation theorem, showing that these three principles characterize Expected Identification Value maximization, a functional form that unifies several theories of experimental design. We also study several special cases and discuss potential applications. |
| Keywords: | choice experiments, experimental design, Revealed Preferences |
| JEL: | D81 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1471 |
| By: | Bhattacharya, Debopam; Oparina, Ekaterina; Xu, Qianya |
| Abstract: | We analyze demand settings where heterogeneous consumers maximize utility for product attributes subject to a nonlinear budget constraint. We develop nonparametric methods for welfare-analysis of interventions that change the constraint. Two new findings are Roy's identity for smooth, nonlinear budgets, which yields a Partial Differential Equation system, and a Slutsky-like symmetry condition for demand. Under scalar unobserved heterogeneity and single-crossing preferences, the coefficient functions in the PDEs are nonparametrically identified, and under symmetry, lead to path-independent, money-metric welfare. We illustrate our methods with welfare evaluation of a hypothetical change in relationship between property rent and neighborhood school-quality using British microdata. |
| Keywords: | hedonic model; nonlinear budget; nonparametric identification; welfare; compensating/equivalent variation; partial differential equation; slutsky symmetry; roy's identity; path independence |
| JEL: | C14 I30 H23 |
| Date: | 2024–11–08 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126792 |
| By: | Costa-Font, Joan; Cowell, Frank |
| Abstract: | This paper examines a behavioural explanation for the Brexit referendum result, namely the role of an individual’s inequality aversion (IA). We study whether the referendum result was an “unconsidered Leave” out of people’s low aversion to inequality. We use a representative sample of the UK population fielded in 2017, and analyse the extent to which lottery-based individual IA estimates predict their Brexit vote. We consider alternative potential drivers of IA in both income and health domains; these include risk aversion, alongside socio-economic and demographic characteristics. A greater aversion to income inequality predicts a lower probability of voting for Leave, even when controlling for risk aversion and other drivers of the Brexit vote. However, this effect is only true among men, for whom an increase in income IA by one standard deviation decreases their likelihood of voting for leaving the EU by 5 percentage points which would have reduced the probability of a leave vote, resulting in an overall remain majority in our sample. However, the effect of health inequality aversion is not significantly different from zero. |
| Keywords: | Brexit; inequality aversion; income inequality aversion; health inequality aversion; imaginary grandchild; risk aversion; locus of control |
| JEL: | H10 I18 |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126923 |
| By: | de Boer, Jantke |
| Abstract: | The position of countries in a network of external portfolio investments provides a novel macroeconomic characteristic to explain violations of uncovered interest rate parity. I derive a network centrality measure, where central countries are highly integrated with key suppliers of tradeable financial assets. Currency risk premia decrease as network centrality increases. Asset pricing tests confirm that the centrality risk factor is priced in the cross-section. Further, negative global shocks appreciate central countries' currencies and depreciate peripheral ones. In a consumption-based capital asset pricing model, central countries experience lower consumption growth in high marginal utility states, leading to currency appreciation. |
| Keywords: | Exchange rates, currency risk premia, external portfolios, financial network, asset pricing |
| JEL: | F31 E43 E44 G12 G15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:rwirep:312406 |
| By: | Hai Ha Pham (EM Normandie - École de Management de Normandie = EM Normandie Business School); Ngoc-Sang Pham (EM Normandie - École de Management de Normandie = EM Normandie Business School) |
| Abstract: | We introduce the notion of wariness, defined as a concern for the lowest lifetime utility, in overlapping generations models and explore its effects on economic growth. In an exogenous growth model, under standard assumptions, we prove that the capital stock converges to a steady state. We then explore conditions under which this steady state is increasing (or decreasing) in the wariness level. We also provide a necessary and sufficient condition for the dynamic efficiency of the intertemporal equilibrium. In endogenous growth models (à la Romer (1986) or à la Barro (1990)), we show that the growth rate of capital stock per capita in the economy with wariness is lower (higher, respectively) than that in the economy without wariness if and only if the capital return is high (low, respectively). |
| Keywords: | Wariness, Overlapping generations, Dynamic efficiency, Economic growth, Endogenous growth, Wariness Overlapping generations Dynamic efficiency Economic growth Endogenous growth |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04918980 |
| By: | Fidanoski, Filip; Dixit, Vinayak; Ortmann, Andreas |
| Abstract: | Luckman et al. (2018) experimentally tested the conjecture that a single model of risky intertemporal choice can account for both risky and intertemporal choices, and under the conditions of their experiment, found evidence supporting it. Given the existing literature, that is a remarkable result which warrants (conceptual) replication. Following a tradition in psychology, Luckman et al. (2018) had first-year psychology students participate that were rewarded with non-monetary course credits (see also Luckman et al., 2020). Proper incentivisation is a long-standing bone of contention among experimentally working economists and psychologists, last but not least when it comes to the elicitation of preferences of any kind. Another reason to be sceptical is that the experiment was not properly powered up; the no-difference results reported by the authors might be spurious. In our conceptual replication of Luckman et al. (2018), we find significant differences between the risky and intertemporal choices at both the group and individual level. We find further that there is no significant difference between choices made by participants that are paid a flat incentive and participants that are paid under the random incentive scheme, at the group level. We find that order effects matter for intertemporal choices, but not for risky choices. At the individual level, we find evidence in favour of the model that assumes a common value function, but separate choice functions. This result is robust across our incentive systems, and order of presentation, but sensitive to different prior distributions. |
| Keywords: | experimental practices, replication, risky intertemporal preferences, risk preferences, time preferences |
| JEL: | C11 C52 C91 D01 D81 D90 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:i4rdps:205 |
| By: | Caio Almeida (Unknown); Kim Ardison (Unknown); Gustavo Freire (Unknown); René Garcia (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Piotr Orlowski (Unknown) |
| Abstract: | We propose a novel measure of the market return tail risk premium based on minimum- distance state price densities recovered from high-frequency data. The tail risk premium extracted from intra-day S&P 500 returns predicts the market equity and variance risk premiums and expected excess returns on a cross section of characteristics-sorted portfolios. Additionally, we describe the differential role of the quantity of tail risk, and of the tail premium, in shaping the future distribution of index returns. Our results are robust to controlling for established measures of variance and tail risk, and of risk premiums, in the predictive models. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04927211 |
| By: | Gilles Grolleau (ESSCA School of Management Lyon); Luc Meunier (ESSCA School of Management, Aix-en-Provence); Naoufel Mzoughi (ECODEVELOPPEMENT - Ecodéveloppement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Inspired from Kahneman's seminal contributions to the theory of framing, we test the impact of noun-versus verb-based framings (e.g., do not be a polluter versus do not pollute) on individuals' behavioral intentions towards two pro-environmental messages aiming at reducing waste. Using a non-incentivized laboratory experimental survey, we find a significant effect of messages framed as verb-based actions (i.e., do not pollute, do not waste) in driving individuals to sign a petition in favor of garbage recycling and accept to receive tips about food waste. Additionally, we also identify a significant negative influence of reactance, hampering pro-environmental behavior. We discuss our exploratory results keeping in mind the humility that characterizes Kahneman's scholarly legacy. |
| Keywords: | behavioral intentions, pollution, framing, moral identity, moral self-image, recycling, waste |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04926850 |
| By: | Hornuf, Lars; Momtaz, Paul P.; Nam, Rachel J.; Yuan, Ye |
| Abstract: | We examine how cybercrime impacts victims' risk-taking and returns. The results from our difference-in-differences analysis of a sample of victim and matched non-victim investors on the Ethereum blockchain are in line with prospect theory and suggests that victims increase their long-term total risk-taking after losing part of their wealth, leading to lower risk-adjusted returns in the post-cybercrime period. Victims' long-term total risk-taking increases because they increase diversifiable risk due to victims' post-cybercrime withdrawal from altcoins. At the same time, the reduction in risk-adjusted returns correlates with increased trading activity and churn, due plausibly to managing cybercrime exposure. In the cross-section of Ethereum addresses, we show that the most affluent victims take a systematic approach to restore their pre-cybercrime wealth level, while the least affluent victims turn into gamblers. Finally, a parsimonious forensic model explains a good part of the addresses' probability of being involved in cybercrime, on both the victim and the cybercriminal side. |
| Keywords: | Ethereum blockchain, market manipulation, financial fraud, token investment scam, cybercrime, cryptocurrency |
| JEL: | G14 G24 G30 L26 M13 O16 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:312431 |