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on Utility Models and Prospect Theory |
| By: | Joao Correia-da-Silva (CEF.UP and Faculdade de Economia, Universidade do Porto) |
| Abstract: | In the presence of events that are seen as ambiguous by all agents in an economy, if preferences are representable by expected uncertain utility functions (Gul and Pesendorfer, 2014), general equilibrium does not typically exist. |
| Keywords: | Expected uncertain utility, General equilibrium, Non-existence. |
| JEL: | C62 D51 D81 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:543&r=upt |
| By: | Seeun Jung; Yasuhiro Nakamoto,; Masayuki Sato; Katsunori Yamada (Université de Cergy-Pontoise, THEMA) |
| Abstract: | We investigate people's dierent conceptions of the economic term consump- tion when comparing with others. An Internet-based hypothetical discrete choice experiment was conducted with Japanese participants. As in other relative income comparison studies, we found that own consumption and own saving had a positive impact on utility, whereas the consumption and saving of a reference person had a negative impact on utility. However, the results show that the magnitudes of consumption and saving dier in size; saving could aect utility much more than consumption for the Japanese subjects. By using scope tests, we found that the impact of own consumption is not monotonic and so does not necessarily increase utility. This calls into question the conventional assumption of the monotonicity of \the utility of consumption"; consumption could be perceived as a negative good. Our results, therefore, provide some evidence that, in reality, people understand and perceive the economic terms dierently from what economists would expect. Furthermore, when considering the consumption of others as well as their own, the size of the discrepancy is even bigger. |
| Keywords: | Relative Utility; Choice Experiment; Misperception of Economic Terms |
| JEL: | C91 A13 D91 J17 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2014-23&r=upt |
| By: | Mikolaj Czajkowski (Faculty of Economic Sciences, University of Warsaw, Poland); Nick Hanley (School of Geography and Sustainable Development, University of St. Andrews); Jacob LaRiviere (Department of Economics, University of Tennessee) |
| Abstract: | This paper develops a choice model for environmental public goods which allows for consumers to learn about their preferences through consumption experiences. We develop a theoretical model of Bayesian updating, perform comparative statics over the model, and show how the theoretical model can be consistently incorporated into a reduced form econometric model. Our main findings are that in a Random Utility Model (RUM) discrete choice model, a subject’s scale should increase and the variability of scale should decrease with experience if subjects are Bayesians. We then estimate the model using field data regarding preferences for one particular public good, water quality. We find strong evidence that additional experience increases scale, thereby makes consumer preferences more predictable from the econometrician’s perspective. We find supportive but less convincing evidence that experience decreases the variability of scale across subjects. |
| Keywords: | Bayesian updating,choice experiment,learning,scale, scale variance |
| JEL: | C51 D83 Q51 H43 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:sss:wpaper:201405&r=upt |
| By: | Francoise Forges (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine); Vincent Iehlé (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine) |
| Abstract: | We identify a natural counterpart of the standard GARP for demand data in which goods are all indivisible. We show that the new axiom (DARP, for "discrete axiom of revealed preference") is necessary and sufficient for the rationalization of the data by a well-behaved utility function. Our results complement the main finding of Polisson and Quah, Am. Econ. J.: Micro. 5(1) p.28-34 (2013), who rather minimally modify the original consumer problem with indivisible goods so that the standard GARP still applies. |
| Keywords: | Afriat's theorem, GARP; indivisible goods; rationalization; revealed preference |
| Date: | 2014–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00870052&r=upt |
| By: | Ali al-Nowaihi; Sanjit Dhami, |
| Abstract: | A critical element in all discounted utility models is the specification of a discount function. We introduce three functions: the delay, speedup and generating functions. Each can be uniquely elicited from behaviour. The delay function determines stationary and the common difference effect. The speedup function determines impatience. Additivity is jointly determined by the delay and speedup functions. The speedup and generating functions jointly determine a unique discount function. Conversely, a continuous discount function determines unique speedup and generating functions. |
| Keywords: | hyperbolic discounting, nonadditivity, impatience, prospect theory, delay function, speedup function, generating function. |
| JEL: | C60 D91 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:14/11&r=upt |
| By: | Sandro Shelegia (University of Vienna, Austria); Chris M Wilson (School of Business and Economics, Loughborough University) |
| Abstract: | This paper presents a generalised framework to understand mixed-strategy sales behaviour with informative advertising. By introducing competition in the utility space into a clearinghouse sales model, we oer a highly tractable framework that can i) provide a novel welfare analysis of intra-personal price discrimination in sales markets, ii) characterise sales in a range of new contexts including complex market settings and situations where rms conduct sales with two-part taris or non-price variables such as package size, and iii) synthesise past research and highlight its key forces and assumptions. |
| Keywords: | Sales; Price Dispersion; Advertising; Clearinghouse; Utility Space; Intra-personal; Price Discrimination; Two-Part Taris; Bonus Packs; Package Size |
| JEL: | L13 D43 M37 D83 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2014_09&r=upt |
| By: | Kim Kaivanto; Eike Kroll |
| Abstract: | Reduction of compound lotteries is implicit both in the statement of the St. Petersburg Paradox and in its resolution by Expected Utility (EU).We report three real-money choice experiments between truncated compound-form St. Petersburg gambles and their reduced-form equivalents. The first tests for differences in elicited Certainty Equivalents. The second develops the distinction between ‘weak-form’ and ‘strong-form’ rejection of Reduction, as well as a novel experimental task that verifiably implements Vernon Smith’s dominance precept. The third experiment checks for robustness against range and increment manipulation. In all three experiments the null hypothesis of Reduction is rejected, with systematic deprecation of the compound form in favor of the reduced form. This is consistent with the predictions of alternation bias. Together these experiments offer evidence that the Reduction assumption may have limited descriptive validity in modelling St. Petersburg gambles, whether by EU or non-EU theories. |
| Keywords: | St. Petersburg Paradox, reduction axiom, alternation bias, dominance precept, law of small numbers, test of indifference |
| JEL: | D81 C91 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:65600286&r=upt |
| By: | John K. Dagsvik; Zhiyang Jia (Statistics Norway) |
| Abstract: | This paper discusses aspects of a framework for modeling labor supply where the notion of job choice is fundamental. In this framework, workers are assumed to have preferences over latent job opportunities belonging to worker-specific choice sets from which they choose their preferred job. The observed hours of work and wage is interpreted as the job-specific hours and wage of the chosen job. The main contribution of this paper is an analysis of the identification problem of this framework under various conditions, when conventional cross-section micro-data are applied. The modeling framework is applied to analyze labor supply behavior for married/cohabiting couples using Norwegian micro data. Specifically, we estimate two model versions with in the general framework. Based on the empirical results, we discuss further qualitative properties of the model versions. Finally, we apply the preferred model version to conduct a simulation experiment of a counterfactual policy reforms. |
| Keywords: | labor supply; non-pecuniary job attributes; latent choice sets; random utility models; identification |
| JEL: | J22 C51 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:786&r=upt |
| By: | Thanh Nguyen (Krannert School of Management, Purdue University); Ahmad Peivandi (Department of Economics, Northwestern University); Rakesh Vohra (Department of Economics, University of Pennsylvania) |
| Abstract: | The problem of allocating bundles of indivisible objects without transfers arises in the assignment of courses to students, of computing resources like CPU time, memory and disk space to computing tasks and the truck loads of food to food banks. In these settings the complementarities in preferences are small compared with the size of the market. We exploit this to design mechanisms satisfying efficiency, envy-freeness and asymptotic strategy-proofness. Informally, we assume that agents do not want bundles that are too large. There will be a parameter k such that the marginal utility of any item relative to a bundle of size k or larger is zero. We call such preferences k-demand preferences. Given this parameter we show how to represent probability shares over bundles as lotteries over approximately (deterministic) feasible integer allocations. The degree of infeasibility in these integer allocations will be controlled by the parameter k. In particular, ex-post, no good is over allocated by at most k -1 units. |
| Keywords: | Fair Allocation, Indivisible Goods |
| JEL: | C61 D63 |
| Date: | 2014–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:14-030&r=upt |