|
on Utility Models and Prospect Theories |
| By: | Burkhard C. Schipper |
| Abstract: | We provide an evolutionary foundation to evidence that in some situations humans maintain optimistic or pessimistic attitudes towards uncertainty and are ignorant to relevant aspects of the environment. Players in strategic games face Knightian uncertainty about opponents' actions and maximize individually their Choquet expected utility. Our Choquet expected utility model allows for both an optimistic or pessimistic attitude towards uncertainty as well as ignorance to strategic dependencies. An optimist (resp. pessimist) overweights good (resp. bad) outcomes. A complete ignorant never reacts to opponents' change of actions. With qualifications we show that optimistic (resp. pessimistic) complete ignorance is evolutionary stable / yields a strategic advantage in submodular (resp. supermodular) games with aggregate externalities. Moreover, this evolutionary stable preference leads to Walrasian behavior in those classes of games. |
| Keywords: | ambiguity, Knightian uncertainty, Choquet expected utility, neo-additive capacity, Hurwicz criterion, Maximin, Minimax, Ellsberg paradox, overconfidence, supermodularity, aggregative games, monotone comparative statics, playing the field, evolution of preferences |
| JEL: | C72 C73 D43 D81 L13 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse35_2005&r=upt |
| By: | Christian Grund (University of Bonn and IZA Bonn); Dirk Sliwka (University of Cologne and IZA Bonn) |
| Abstract: | The impact of wage increases on job satisfaction is explored theoretically and empirically. To do this, we apply a utility function that rises with the absolute wage level as well as with wage increases. It is shown that when employees can influence their wages by exerting effort, myopic utility maximization directly implies increasing and concave shaped wage profiles. Furthermore, employees get unhappier over time staying on a certain job although wages increase. Using data from 19 waves of the German Socio-Economic Panel we find empirical support for both the form of the utility function and the decreasing job satisfaction patterns. |
| Keywords: | job satisfaction, wage increases, wage profiles, reference dependent utility, habit formation, loss aversion |
| JEL: | M54 J28 J30 M12 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1879&r=upt |
| By: | Jun-ichi Itaya (Graduate School of Economics and Business Administration, Hokkaido UniversityAuthor-Name: Kazuo Mino; Graduate School of Economies, Osaka University) |
| Abstract: | This paper studies the growth effect of money supply in the presence of increasing returns and endogenous labor supply. By using a simple model of endogenous growth with a cash-in-advance constraint, it is shown that the growth effect of money supply depends on the specifications of preference structures as well as on the production technology. Either if the production technology exhibits strong non-convexity or if the utility function has a high elasticity of intertemporal substitution, then there may exist dual balanced-growth equilibria and the impact of a change in money growth depends on which steady state is realized in the long run. It is also shown that there is no systematic relationship between the growth effect of money supply and local determinacy of the balanced growth path. |
| Keywords: | monetary growth, indeterminacy, increasing returns, non-separable utility. |
| JEL: | E31 E52 O42 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0535&r=upt |
| By: | Mikhail Anufriev |
| Abstract: | This paper demonstrates how both quantitative and qualitative results of general, analytically tractable asset-pricing model in which heterogeneous agents behave consistently with a constant relative risk aversion assumption can be applied to the particular case of ``linear'' investment choices. In this way it is shown how the framework developed in Anufriev and Bottazzi (2005) can be used inside the classical setting with demand derived from utility maximization. Consequently, some of the previous contributions of the agent-based literature are generalized. In the course of the analysis of asymptotic market behavior the main attention is paid to a geometric approach which allows to visualize all possible equilibria by means of a simple one-dimensional curve referred as the Equilibrium Market Line. The case of linear (particularly, mean-variance) investment functions thoroughly analyzed in this paper allows to highlight those features of the asymptotic dynamics which are common to all types of the CRRA-investment behavior and those which are specific for the linear investment functions. |
| Keywords: | Asset Pricing Model, CRRA Framework, Equilibrium Market Line, Rational Choice, Expected Utility Maximization, Mean-Variance Optimization, Linear Investment Functions. |
| Date: | 2005–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2005/27&r=upt |
| By: | Fulvio Fontini (University of Padua) |
| Abstract: | In this paper we consider Georgescu-Roegen's approach to uncertainty, showing that his characterization of expectations cannot be reduced to any probabilistic decision making model. Drawing upon Georgescu-Roegen lesson a lexicographical utility function is proposed and analyzed in the mark of his own peculiar scientific methodology. It is demonstrated that such a formulation can be useful in solving usual failure of the expected utility model, such as the Ellsberg paradoxes. The epistemic limits of our re-construction are considered, too. |
| JEL: | B31 D84 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0008&r=upt |
| By: | Simon Grant (Department of Economics, Rice University); Atsushi Kajii (Institute of Economic Research, Kyoto University) |
| Abstract: | We characterize the intersection of the probabilistically sophisticated and multiple prior models. We show this class is strictly larger than the subjective expected utility model and that its elements can be generated from a generalized class of the -contaminated priors, which we dub the - contaminated/ -truncated prior. |
| Keywords: | subjective probability, maximin expected utility, epsilon-contamined priors. |
| JEL: | D81 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:608&r=upt |
| By: | Egil Matsen; Tommy Sveen; Ragnar Torvik |
| Abstract: | This paper analyzes the effects of fiscal policy in an open economy. We extend the savers-spenders theory of Mankiw (2000) to a small open economy with endogenous labor supply. We first show how the Dornbusch (1983) consumption-based real interest rate for open economies is modified when labor supply is endogenous. We then turn to the effects of fiscal policy when there are both savers and spenders. With this heterogeneity taken into account, tax cuts have a short-run contractionary effect on domestic production, and increased public spending has a short-run expansionary effect. Although consistent with recent empirical work, this result contrasts with those of most other theoretical models. Transitory changes in demand have permanent real effects in our model, and we discuss the implications for real exchange-rate dynamics. We also show how “rational” savers may magnify or dampen the responses of “irrational” spenders, and show how this is related to features of the utility functions. |
| Keywords: | rule-of-thumb consumers, fiscal policy, open economy |
| JEL: | E21 E62 F41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1618&r=upt |