|
on Utility Models and Prospect Theory |
| By: | Leila Gautham; Clemens Hetschko; Peter Howley |
| Abstract: | We demonstrate that higher income enhances the enjoyment individuals derive from leisure. This effect cannot be explained by diminishing marginal utility of leisure time or systematic differences in leisure activities across income groups. Instead, we show that this is largely attributable to cognitive stress – low income constrains the mental bandwidth necessary to enjoy leisure. These findings challenge the view that more leisure time offsets income inequalities. While higher-income individuals have less leisure time available, the leisure they do engage in provides them with greater utility. These findings also have important implications for how we model labour supply. Wage increases may not just increase the marginal cost of leisure, but also enhance the utility it provides. Finally, our research speaks to debates on the role that money plays in happiness. Our findings suggest that the utility-enhancing effect of income is largely due to the role income plays in buying ‘restful’ leisure. |
| Keywords: | leisure, consumption, inequality, emotional wellbeing |
| JEL: | D63 I3 J22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12169 |
| By: | Kirill Borissov; Stefano Bosi; Thai Ha-Huy; Van-Quy Nguyen; Mikhail Pakhnin |
| Abstract: | We study a discrete-time optimal growth model with endogenous discounting. The discount factor may depend on both consumption and the capital stock, and intertemporal utility is modeled as a discounted sum of instantaneous utilities, with the sum of discount factors equal to one. We show that this specification preserves the invariance of optimal paths and steady states to affine transformations of the instantaneous utility function, providing a general and flexible framework for analyzing economic dynamics under endogenous time preference. We prove that optimal capital paths are monotonic, and steady states depend on initial conditions. We also show the robustness of poverty traps under endogenous discounting: in several examples, for a set of parameters with positive measure, the optimal path converges to a positive steady state only if the initial capital stock exceeds a critical level and otherwise converges to the origin. |
| Keywords: | economic growth, time preference, endogenous discounting, poverty traps |
| JEL: | C61 D15 D90 O41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12156 |
| By: | Anna Bogomolnaia (University of Glasgow, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Hervé Moulin (University of Glasgow, Higher School of Economics [Saint-Pétersbourg]) |
| Abstract: | We divide efficiently a pile of indivisible goods in common property, using cash transfers to ensure fairness among agents with utility linear in money. We compare three cognitively feasible and privacy preserving division rules in terms of the guarantees (worst case utility) they offer to the participants. In the first version of Divide & Choose to n agents, they bid for the role of Divider then everyone bids on the shares of the Divider's partition. In the second version each agent announces a partition and they all bid to select the most efficient one. In the Bid & Sell rule the agents bid for the role of Seller: with two agents the smallest bid defines the Seller who then charges any price constrained only by her winning bid. Both rules reward subadditive utilities and penalise superadditive ones, and B&S more so than both D&C-s. B&S is also better placed to collect a larger share of the surplus when agents play safe. |
| Keywords: | Bid and Sell, Divide &, Choose, worst case, guarantees, safe play |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05139641 |
| By: | Philippe de Donder (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements 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); Humberto Llavador (UPF - Universitat Pompeu Fabra [Barcelona]); Stefan Penczynski (UEA - University of East Anglia [Norwich]); John E. Roemer (Yale University [New Haven]); Roberto Vélez-Grajales (Auteur indépendant) |
| Abstract: | The vaccination game exhibits positive externalities. The standard game-theoretic approach assumes that parents make decisions according to the Nash protocol, which is ndividualistic and non-cooperative. However, in more solidaristic societies, parents may behave cooperatively, optimizing according to the Kantian protocol, in which the equilibrium is efficient. We develop a random utility model of vaccination behavior and prove that the equilibrium coverage rate is larger with the Kant protocol than with the Nash one. Using survey data collected from six countries, we calibrate the parameters of the vaccination game, compute both Nash equilibrium and Kantian equilibrium profiles, and compare them with observed vaccination behavior. We find evidence that parents demonstrate cooperative behavior in all six countries. The study highlights the importance of cooperation in shaping vaccination behavior and underscores the need to consider these factors in public health interventions. |
| Keywords: | free-rider problem, measles vaccination, Nash equilibrium, Kantian equilibrium |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05285397 |
| By: | Béla Elmshauser; Evan Friedman; Yoon Joo Jo |
| Abstract: | Conveying private information to interested parties is central to almost every economic and social activity. In such interactions, the sender may lie by misreporting the truth, but may also deceive by inducing inaccurate beliefs about the payoff-relevant state. While a huge experimental literature documents aversion to lying, there is little evidence regarding aversion to deceiving others. Deception aversion is conceptually difficult to document because it depends on unobserved second-order beliefs: the sender’s belief over the receiver’s belief (over the payoff-relevant state). In this paper, we introduce a novel game and show theoretically how to identify deception aversion from choice data alone, with minimal assumptions on second-order beliefs. We run a laboratory experiment and find strong support for deception aversion that is robust to several natural variations of the game. Many subjects lie in order to avoid deception, and structural estimates imply that 30% of subjects are deception-averse. |
| Keywords: | lying, deception, lying aversion, deception aversion, image concerns, strategic communication, psychological game theory |
| JEL: | C44 C72 C92 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12154 |
| By: | Nicole Hentschel (University of St.Gallen and Swiss National Bank) |
| Abstract: | Despite the long-termtrend away from cash and the widespread adoption and acceptance of payment cards, many people still carry considerable amounts of cash. In a preregistered study, I examine whether risk attitudes can explain consumers’ persistent cash holdings. To self-insure against the possibility of being unable to pay by card, risk-averse consumers are expected to hold cash in larger amounts. Moreover, consumers who overweight the small probability of card non-acceptance and those who prefer early resolution of uncertainty are also predicted to carry more cash. I test these predictions using data from the RAND American Life Panel (N = 989) and on experimental preference data from Swiss consumers (N = 1’666). 86% of U.S. and 95% of Swiss individuals carry cash in their wallets, with an average of USD 64 and CHF 94, respectively. Neither risk aversion, probability weighting, nor a preference for early resolution of uncertainty are consistently related to cash holdings. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:szg:worpap:2504 |
| By: | Heng-fu Zou |
| Abstract: | This paper develops a governance-augmented Ramsey-Cass-Koopmans (RCK) growth model that unifies the neoclassical theory of capital accumulation with the institutional economics of Coase, Williamson, Alchian-Demsetz, Barzel, North, and Grossman-Hart-Moore. The central proposition is that governance is production: institutions reshape the effective production frontier, alter the intertemporal Euler condition, and modify welfare. On the production side, relation-specific investment generates incentive relief when returns are appropriable, offset by bureaucratic drag, safeguarding costs, and maladaptation. On the consumption side, transaction frictions such as iceberg costs, convex distribution costs, shopping-time requirements, and psychological wedges reduce effective utility. The model demonstrates that governance frictions shift steady states, generate multiple equilibria, and create low-level development traps. Comparative statics show that strengthening property rights, reducing bureaucracy, and lowering consumer frictions raise capital, consumption, and welfare. Cross-country differences in governance parameters explain divergent growth paths, while endogenizing institutions yields virtuous cycles, vicious cycles, and path dependence. The framework integrates institutional economics into dynamic macroeconomics, providing a rigorous foundation for understanding how governance structures shape long-run development. |
| Keywords: | Ramsey–Cass–Koopmans model; governance; transaction costs; property rights; appropriability; bureaucracy; consumption frictions; institutions; multiple equilibria; economic growth; welfare; political economy |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:785 |
| By: | Ian Dew-Becker; Stefano Giglio |
| Abstract: | Equity index options historically displayed sharply negative returns and CAPM alphas. This could reflect investor risk preferences or intermediary frictions. We document that over the past 15 years, option alphas have become indistinguishable from zero. We also introduce synthetic options, that, under some conditions, reflect risk preferences of the average equity investor, independent of option-market frictions. Synthetic options never, over the last 100 years, had negative alpha, indicating that equity investors never required high compensation for market downturns. An intermediary-based model explains the patterns in both synthetic and traded options, including the recent decline in the variance risk premium. |
| Keywords: | Options; Tail risk; Financial friction |
| JEL: | G1 G12 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:101806 |