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on Utility Models and Prospect Theory |
| By: | Driesen, Bram (Maastricht University) |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ner:maastr:urn:nbn:nl:ui:27-22806&r=upt |
| By: | Marc-Arthur Diaye (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, CEE - Centre d'Etudes de l'Emploi - Ministère de la recherche - Ministère chargé de l'Emploi); André Lapidus (PHARE - Pôle d'Histoire de l'Analyse et des Représentations Economiques - CNRS : FRE2541 - Université Panthéon-Sorbonne - Paris I - Université de Paris X - Nanterre) |
| Abstract: | The purpose of this paper is to introduce explicitly pleasure and belief in what aims at being a Humean theory of decision, like the one developed in Diaye and Lapidus (2005a). Although we support the idea that Hume was in some way a hedonist – evidently different from Bentham's or Jevons' way – we lay emphasis less on continuity than on the specific kind of hedonism encountered in Hume's writings (chiefly the Treatise, the second Enquiry, the Dissertation, or some of his Essays). Such hedonism clearly contrasts to its standard modern inheritance, expressed by the relation between preferences and utility. The reason for such a difference with the usual approach lies in the mental process that Hume puts to the fore in order to explain the way pleasure determines desires and volition. Whereas pleasure is primarily, in Hume's words, an impression of sensation, it takes place in the birth of passions as reflecting an idea of pleasure, whose “force and vivacity” is precisely a “belief”, transferred to the direct passions of desire or volition that come immediately before action. As a result, from a Humean point of view, “belief” deals with decision under risk or uncertainty, as well with intertemporal decision and indiscrimination problems. The latter are explored within a formal framework, and it is shown that the relation of pleasure is transformed by belief into a non-empty class of relations of desire, among which at least one is a preorder. |
| Keywords: | Hume; decision; pleasure; belief; passion; desire; preference; rationality; indiscrimination; will; choice |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00483263_v1&r=upt |
| By: | Hooi Hooi Lean; Michael McAleer (University of Canterbury); Wing-Keung Wong |
| Abstract: | This paper examines investor preferences for oil spot and futures based on mean-variance (MV) and stochastic dominance (SD). The mean-variance criterion cannot distinct the preferences of spot and market whereas SD tests leads to the conclusion that spot dominates futures in the downside risk while futures dominate spot in the upside profit. It is also found that risk-averse investors prefer investing in the spot index, whereas risk seekers are attracted to the futures index to maximize their expected utilities. In addition, the SD results suggest that there is no arbitrage opportunity between these two markets. Market efficiency and market rationality are likely to hold in the oil spot and futures markets. |
| Keywords: | Stochastic dominance; risk averter; risk seeker; futures market; spot market |
| JEL: | C14 G12 G15 |
| Date: | 2010–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:10/22&r=upt |
| By: | Schade, Christian; Schroeder, Andreas; Krause, Kai Oliver |
| Abstract: | We analyze the effects of prior gain and loss experiences on individualsâ behavior in two coordination games: battle of the sexes and simultaneous market entry. We propose subjectively transformed games that integrate elements of prospect theory, aggregation of prior and subsequent payoffs, and social projection. Mathematical predictions of behavior are derived based on equilibrium selection concepts. Malesâ behavior in our experimental studies is largely consistent with our predictions. However, the behavior of many female respondents appears to be rather consistent with interpreting the initial random lottery outcomes used to manipulate prior experiences as a signal for the playersâ abilities to compete. This could be related to femalesâ known uneasiness of competing against counterparts that might be male and thus, a generally higher salience of rivalry in our incentivized experiments. Females also chose to play far more mixed strategies than males indicating some uncertainty about what type of behavior is appropriate. |
| Keywords: | Prospect Game Theory, Prior Outcomes, Coordination, Equilibrium Selection, Economic Experiment, Agribusiness, Agricultural and Food Policy, Financial Economics, Institutional and Behavioral Economics, Research Methods/ Statistical Methods, Risk and Uncertainty, |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:huscpw:59524&r=upt |
| By: | Miguel A. Segoviano Basurto; Carlos Caceres; Vincenzo Guzzo |
| Abstract: | Over the past year, euro area sovereign spreads have exhibited an unprecedented degree of volatility. This paper explores how much of these large movements reflected shifts in (i) global risk aversion (ii) country-specific risks, directly from worsening fundamentals, or indirectly from spillovers originating in other sovereigns. The analysis shows that earlier in the crisis, the surge in global risk aversion was a significant factor influencing sovereign spreads, while recently country-specific factors have started playing a more important role. The perceived source of contagion itself has changed: previously, it could be found among those sovereigns hit hard by the financial crisis, such as Austria, the Netherlands, and Ireland, whereas lately the countries putting pressure on euro area government bonds have been primarily Greece, Portugal, and Spain, as the emphasis has shifted towards short-term refinancing risk and long-term fiscal sustainability. The paper concludes that debt sustainability and appropriate management of sovereign balance sheets are necessary conditions for preventing sovereign risk from feeding back into broader financial stability concerns. |
| Keywords: | Bonds , Cross country analysis , Economic models , Financial crisis , Fiscal policy , Global Financial Crisis 2008-2009 , Risk premium , Sovereign debt , Spillovers , |
| Date: | 2010–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/120&r=upt |
| By: | Shaul Almakias (Finance Ministry, Israel); Avi Weiss (Bar-Ilan University) |
| Abstract: | In this paper we import a mainstream psycholgical theory, known as attachment theory, into economics and show the implications of this theory for economic behavior by individuals in the ultimatum bargaining game. Attachment theory examines the psychological tendency to seek proximity to another person, to feel secure when that person is present, and to feel anxious when that person is absent. An individual's attachment style can be classified along two-dimensional axes, one representing attachment "avoidance" and one representing attachment "anxiety". Avoidant people generally feel discomfort when being close to others, have trouble trusting people and distance themselves from intimate or revealing situations. Anxious people have a fear of abandonment and of not being loved. Utilizing attachment theory, we evaluate the connection between attachment types and economic decision making, and find that in an Ultimatum Game both proposers' and responders' behavior can be explained by their attachment styles, as explained by the theory. We believe this theory has implications for economic behavior in different settings, such as negotiations, in general, and more specifically, may help explain behavior, and perhaps even anomalies, in other experimental settings. |
| Keywords: | Attachment Theory, Experimental Economics, Behavioral Economics, Ultimatum Game, Psychology and Economics |
| JEL: | C91 C78 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2010-01&r=upt |
| By: | Haishi Huang |
| Abstract: | Within a default intensity approach we discuss the optimal exercise of the callable and convertible bonds. Pricing bounds for convertible bonds are derived in an uncertain volatility model, i.e. when the volatility of the stock price process lies between two extreme values. |
| Keywords: | Convertible bond, game option, uncertain volatility, interest rate risk |
| JEL: | G12 G33 |
| Date: | 2009–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse09_2010&r=upt |