|
on Utility Models and Prospect Theory |
| By: | Ali Moghaddasi Kelishomi (Loughborough University); Daniel Sgroi (University of Warwick) |
| Abstract: | Empirical comparisons of preferences often treat the dispersion parameter in a random utility model as noise around a correctly specified utility function. We show that this interpretation can fail: dispersion absorbs systematic behaviour that the fitted preference family cannot span. Using portfolio choices from four studies, we estimate disappointment-aversion random utility models and compare the dispersion parameter with revealed-preference diagnostics. A money-metric decomposition separates axiomatic inconsistency from the additional loss due to imposing DA-CRRA preferences. Both components in dependently predict dispersion, and model-relative misspecification remains strongly predictive among subjects who satisfy revealed-preference consistency. In our sharpest test, coefficients estimated on three studies predict dispersion in a held-out representative sample. A calibrated simulation illustrates the distinction. The dispersion parameter is therefore not a model-free measure of decision quality. It is jointly informative about choice inconsistency and preference-model fit, with implications for comparisons of recovered preferences and stochastic precision across people and environments |
| Keywords: | Revealed Preference, Random Utility Models, Model Misspecification, Structural Noise, Choice Consistency JEL codes: D81, D11, D12, C91 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1629 |
| By: | Jordan Roulleau-Pasdeloup |
| Abstract: | I derive an explicit mapping from initial assets, income and the real interest rate to consumption for an income fluctuation problem with a borrowing constraint and CARA utility. I show that there exists a threshold of initial wealth over which the partial equilibrium consumption response to a permanent increase in the real interest rate is positive, consistent with recent empirical evidence. I further show that precautionary savings reinforce the possibility of crowding in and that the possibility of a positive response extends to a more standard CRRA utility whenever the elasticity of intertemporal substitution is strictly less than 1. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.09888 |
| By: | Lakshya Katariya; Cindy Lopes Bento; Christoph Grimpe |
| Abstract: | Public money for research is distributed through peer-review but it has been criticized to disfavour risky science. Traditional review typically asks reviewers to compress multiple dimensions such as novelty, feasibility, impact, etc. into a single overall score, and this compression may penalise proposals whose potential is high but uncertain. The subjective expected utility (SEU) framework instead asks them to assess separately the utility and likelihood of a proposal's potential outcomes without issuing an overall compressed score. This paper examines whether structuring peer review in this way, systematically alters the ranking of grant proposals. Using a field experiment embedded in a real funding call, we have the same proposals evaluated under either traditional criteria or SEU criteria, with a treatment assignment that we argue to be as good as random. We find that the two methods produce very different orderings of the same applications: their percentile ranks are essentially uncorrelated, and individual applications shift considerably in relative position. SEU reorders applications along dimensions traditional review leaves implicit: 'High-Likelihood High-Utility' applications are ranked higher and 'Low-Likelihood Low-Utility' applications lower under SEU as compared to traditional review. Importantly, we do not observe a significant up- ranking of ‘Low-Likelihood High-Utility’ applications under SEU relative to the traditional review. On the contrary, 'High-Likelihood Low-Utility' application show a significant yet modest down-ranking under SEU relative to traditional review. These ranking differences translate into substantially different funding outcomes. Applying the funding cutoff that corresponds to the number of applications actually funded to each ranking, the 3 applications that would be funded under SEU were, without exception, those that referees had classified as high-likelihood (23 'High-Likelihood High-Utility' and 2 'High-Likelihood Low-Utility'). Traditional review, while also favouring high-likelihood submissions, would fund a mix across all four likelihood-utility categories, including the low-likelihood applications (roughly a third of the pool) that fail to clear the cutoff under SEU. On average, only 3.5 of the 25 applications funded under traditional review would also be funded under SEU, corresponding to a turnover rate of 86%. Our findings show that the structure of evaluation systematically shapes which applications rise to the top and, under a fixed funding cutoff, which would be funded, depending on whether referees issue a single overall judgment or score utility and likelihood separately. |
| Keywords: | Subjective expected utility, high-risk high-reward, feasibility, impact, grant proposal, peer-review, evaluation, funding |
| Date: | 2026–09–17 |
| URL: | https://d.repec.org/n?u=RePEc:ete:msiper:793640 |
| By: | Kevin Dano; Bryan S. Graham; Yassine Sbai Sassi |
| Abstract: | In social and economic networks linked agents often share connections in common. There are two competing explanations for this phenomenon. First, agents may have a structural taste for transitive links - the returns to linking may be higher if two agents share a common connection. Second, agents may assortatively match on unobserved attributes, a process called homophily. We study parameter identifiability in a simple model of dynamic network formation with both effects. Agents form, maintain, and dissolve links over time to maximize utility. The return to linking may be higher if agents share connections in common. A pair-specific utility component allows for arbitrary homophily on time-invariant agent attributes. We derive conditions under which it is possible to detect the presence of a taste for transitivity in the presence of assortative matching on unobservables. We leave the joint distribution of the initial network and the pair-specific utility component, both high dimensional nuisance parameters, unrestricted. Our identification result is constructive, suggesting an analog estimator, whose finite and (single) large network properties we characterize. We show, via examples, the delicacy of information accumulation in the single (large) network setting. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.14049 |
| By: | Ted O'Donoghue; Charles Sprenger; Po Hyun Sung; Ben Wincelberg |
| Abstract: | Past research highlights failures of "procedural invariance" when measuring economic preferences using choices versus valuations. We reassess these failures by examining theoretical connections between choices and valuations when preferences are stable but measurements are noisy and individuals are heterogeneous. Even under strong assumptions governing noise and heterogeneity, stability does not generally imply identical measurements. We develop new tests of stable preferences in conjunction with various ancillary assumptions about heterogeneity and noise. We implement these tests using existing data to understand if, in the domain of risk preferences, choices and valuations truly differ and to provide quantitative assessments of any deviations. Limiting to the types of data used in the prior literature, we rarely reject the null of stable preferences. With richer data linking individual choices and valuations and structural assumptions, we find evidence of instability which differs qualitatively from the received wisdom that choices implicate greater risk aversion than valuations. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.12291 |