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on Utility Models and Prospect Theory |
| By: | Harin, Alexander |
| Abstract: | This paper is a brief review and development of a part of the plenary report in the Moscow Institute of Physics and Technology. Three existing tools of sub-interval analysis (sub-interval arithmetic, incomplete data analysis and images) are reviewed and elements of two new tools (sub-interval calculus and layerwise analysis) are presented. The sub-interval analysis may be used, e.g., in economics: microeconomics, macroeconomics, accounting, econometrics, utility theory; internet. |
| Keywords: | economics; microeconomics; macroeconomics; accounting; econometrics; utility; utility theory; modeling; internet; |
| JEL: | C0 A1 C02 C1 |
| Date: | 2012–12–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43414&r=upt |
| By: | Mayrhofer, Thomas; Krieger, Miriam |
| Abstract: | We study risk-aversion and prudence in medical treatment decisions. In a laboratory experiment, we investigate the frequency and intensity of second- and third-order risk preferences, as well as the effect of the medical decision context. Risk preferences are assessed through treatment thresholds (the indifference point between not treating and treating). Under diagnostic risk, medical decision theory predicts lower treatment thresholds for risk-averse than for risk-neutral decision makers. Given a comorbidity risk in the sick state, prudent individuals have an even lower threshold. Our results demonstrate risk-averse and prudent behavior in medical decisions, which reduce the (average) treatment threshold by 41% relative to risk-neutrality (from 50.0% to 29.3%). Risk aversion accounts for 3/4 of this effect, prudence for 1/4. Medical decision framing does not affect risk aversion, but is associated with more and stronger prudent behavior. These findings can have consequences for diagnostic technologies and QALYs, and thus for clinical guidelines. -- |
| JEL: | I10 C91 D81 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc12:62033&r=upt |
| By: | Souza, Filipe; Rêgo, Leandro |
| Abstract: | We discuss the rationality of burning money behavior from a new perspective: the mixed Nash equilibrium. We support our argument analyzing the first-order derivatives of the mixed equilibrium expected utility of the players with respect to their own utility payoffs in a 2x2 normal form game. We establish necessary and sufficient conditions that guarantee the existence of negative derivatives. In particular, games with negative derivatives are the ones that create incentives for burning money behavior since such behavior in these games improves the player’s mixed equilibrium expected utility. We show that a negative derivative for the mixed equilibrium expected utility of a given player i occurs if, and only if, he has a strict preference for one of the strategies of the other player. Moreover, negative derivatives always occur when they are taken with respect to player i’s highest and lowest game utility payoffs. |
| Keywords: | Mixed Nash Equilibrium; Burning Money; Collaborative Dominance; Security Dilemma |
| JEL: | C7 |
| Date: | 2012–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43410&r=upt |
| By: | Harin, Alexander |
| Abstract: | The article represents a brief review and development of the plenary report in the Moscow Institute of Physics and Technology. Three existing tools of sub-interval analysis (sub-interval arithmetic, incomplete data analysis and images) are reviewed and elements of two new tools (sub-interval calculus and layerwise analysis) are presented. The sub-interval analysis may be used, e.g., in economics: microeconomics, macroeconomics, accounting, econometrics, utility theory; the Internet, statistics, Fourier analysis. |
| Keywords: | economics; microeconomics; macroeconomics; accounting; econometrics; utility; utility theory; modeling; internet; |
| JEL: | A1 C0 C02 C1 |
| Date: | 2012–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43494&r=upt |
| By: | Archavski, V. Yu.; Okulov, V. L. |
| Abstract: | We asked the participants of our controlled experiment to solve the Newsboy Problem. In this work we describe the design of the experiment. We analyze results of the experiment and emphasize the difference between the theoretical solution and the solution chosen by our subjects. We test sever-al hypotheses including the hypothesis of learning. We also suggest a pos-sible algorithm that could have been used by the participants. Using the assumptions of the probabilistic algorithm we compute the stationary distribution of the solutions. Executive summary is available on p.39 (in English). |
| Keywords: | Newsboy (Newsvendor) Problem, random demand, economic experiment, uncertainty, risk, algorithm decision, steady-state distribution, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:sps:wpaper:541&r=upt |
| By: | Salvatore Federico; Paul Gassiat; Fausto Gozzi |
| Abstract: | We consider a utility maximization problem for an investment-consumption portfolio when the current utility depends also on the wealth process. Such kind of problems arise, e.g., in portfolio optimization with random horizon or with random trading times. To overcome the difficulties of the problem we use the dual approach. We define a dual problem and treat it by means of dynamic programming, showing that the viscosity solutions of the associated Hamilton-Jacobi-Bellman equation belong to a suitable class of smooth functions. This allows to define a smooth solution of the primal Hamilton-Jacobi-Bellman equation, proving that this solution is indeed unique in a suitable class and coincides with the value function of the primal problem. Some financial applications of the results are provided. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1301.0280&r=upt |