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on Utility Models and Prospect Theory |
| By: | Gray, Wesley |
| Abstract: | Evidence suggests that arbitragers exchange investment ideas. We analyze why and under what circumstances sharing occurs. Our model suggests that sharing ideas will lead to the following: more efficient asset prices, larger arbitrager profits, and correlated arbitrager returns. We predict that arbitragers will exchange ideas in markets where arbitragers are capital constrained, noise trader influence is high, and arbitrage investors are more loss averse. We also predict that arbitrage networks can lead to crowded trades, which can create systematic risk in extreme market circumstances. |
| Keywords: | arbitrage; hedge funds; market efficiency; information exchange; social networks; loss aversion; crowded trades |
| JEL: | G14 G12 G11 G10 |
| Date: | 2008–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11918&r=upt |
| By: | Foucault, Thierry; Cespa, Giovanni |
| Abstract: | In this paper, the authors consider a multi-period rational expectations model in which risk-averse investors differ in their information on past transaction prices (the ticker). Some investors (insiders) observe prices in real-time whereas other investors (outsiders) observe prices with a delay. |
| Keywords: | market data sale; latency; transparency; price discovery; Hirsh-leifer effect |
| JEL: | D46 D53 |
| Date: | 2008–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:0892&r=upt |
| By: | Manoj Atolia (Department of Economics, Florida State University); Kislaya Prasad (Robert H. Smith School of Business, University of Maryland) |
| Abstract: | We develop a model of occupational choice and entrepreneurship in the presence of relative wealth concerns. A concern for relative standing arises even though individuals care only about consumption of standard commodities. We assume that entrepreneurial returns are not diversifiable, which results in less entrepreneurship than would be the case with complete markets. Relative wealth concerns are shown to lead to an increase in entrepreneurship and risk-taking, mitigating this difficulty substantially. When we change the profile of the economy to include more risk-averse people, we find that there is a greater increase in entrepreneurship. We examine the effects of uncertainty about economic policies such as market-based reforms on entrepreneurship. |
| Keywords: | Entrepreneurship, risk, occupational choice, policy uncertainty, relative wealth concerns |
| JEL: | D84 J24 O11 O12 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2008_11_02&r=upt |
| By: | Zou, Ning Ning (Helen); Hobbs, Jill E. |
| Abstract: | This paper examines the reference-dependent and labelling effects when consumers make choices about functional foods, and explores how changes in reference points could alter individuals€٠preferences. Functional food (probiotic yogurt) and regular food (regular yogurt) are used as examples to explore the potential reference-dependent effects and labelling effects. A consumer utility model with reference point effects is developed. The paper also explores how to model the effects of different labelling (health claim) policies, which could influence consumer preferences by changing consumers€٠reference points. |
| Keywords: | consumer utility, functional food, labelling policy, Agribusiness, Agricultural and Food Policy, Consumer/Household Economics, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, D11, D12, |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ualbnp:45496&r=upt |
| By: | Ilan Yaniv; Shoham Choshen-Hillel; Maxim Milyavsky |
| Abstract: | In the interest of improving their decision-making, individuals revise their opinions on the basis of samples of opinions obtained from others. However, such a revision process may lead decision-makers to experience greater confidence in their less accurate judgments. We theorize that people tend to underestimate the informative value of independently drawn opinions, if these appear to conflict with one another, yet place some confidence even in the "spurious consensus" which may arise when opinions are sampled interdependently. The experimental task involved people’s revision of their opinions (caloric estimates of foods) on the basis of advice. The method of sampling the advisory opinions (independent or interdependent) was the main factor. The results reveal a dissociation between confidence and accuracy. A theoretical underlying mechanism is suggested whereby people attend to consensus (consistency) cues at the expense of information on interdependence. Implications for belief-updating and for individual and group decisions are discussed. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp492&r=upt |