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on Utility Models and Prospect Theory |
| By: | Bergtold, Jason S.; Ramsey, Steven M. |
| Abstract: | Estimation of binary choice models typically require that the econometric model satisfy the utility maximization hypothesis. The most widely used models for this purpose are the binary logit and probit models. To satisfy the utility maximization hypothesis the logit and probit models must make a priori assumptions regarding the underlying functional form of a representative utility function. Such a theoretical restriction on a statistical model withouth considering the underlying probabilistic structure of the observed data can leave the postulated estimable model statistically misspecified. Feed-forward back-propagation artificial neural networks (FFBANN) provide a potentially powerful semi-nonparametric method to avoid misspecifications. This paper shows that a single-hidden layer FFBANN can be interpreted as a logistic regression with a flexible index function. An empirical application is conducted using FFBANNs to model a contingent valuation study and estimate marginal effects and willingness-to-pay. Results are used for comparison with more traditional methods such as the binary logit and probit models. |
| Keywords: | Binary Choice, Contingent Valuation, Logistic Regression, Neural Networks, Marginal Effects, Seminonparametric, Willingness to Pay, Environmental Economics and Policy, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy, |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea15:205649&r=upt |
| By: | Oben Kurtulus Bayrak; John Hey |
| Abstract: | This paper presents a new theory, called Preference Cloud Theory, of decision-making under uncertainty. This new theory provides an explanation for empirically-observed Preference reversals. Central to the theory is the incorporation of preference imprecision which arises because of individualsâ vague understanding of numerical probabilities. We combine this concept with the use of the Alpha model (which builds on Hurwiczâs criterion) and construct a simple model which helps us to understand various anomalies discovered in the experimental economics literature that standard models cannot explain. |
| JEL: | D81 |
| Date: | 2015–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:jmp:jm2015:pba1276&r=upt |
| By: | Ajewole, Kayode; Peterson, Hikaru H.; Yamaura, Koichi |
| Keywords: | Latent Class Model, Willingness To Pay, Japan, GM Foods, Loss aversion, Ambiguity aversion, Consumer/Household Economics, Risk and Uncertainty, |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea15:205611&r=upt |
| By: | Sanou, Awa; Liverpool-Tasie, Lenis Saweda O.; Shupp, Robert |
| Abstract: | Fertilizer micro-dosing is a precision fertilizer application technique that has the potential to improve agricultural productivity and livelihoods in Niger. Despite more than two decades of disseminating the technology, adoption rates remain low and there is evidence of dis-adoption of micro-dosing among fertilizer users. Since fertilizer is a risk increasing technology, it is possible that risk attitudes contribute to the low rates of adoption observed. This paper empirically estimates the effects of risk attitudes on fertilizer use and the practice of micro-dosing. We elicit several measures of risk aversion to assess their comparability and supplement those with measures of ambiguity and loss aversion to examine their effect on the decision to use fertilizer. We find that incentivized measures of risk attitudes have better predictive power than general measures based on hypothetical survey questions. Risk aversion matters in the decision to use fertilizer, and less risk averse farmers tend to practice micro-dosing over mixing seeds with fertilizer. Consequently, it is important to consider policies like insurance programs for risk averse farmers, to increase their likelihood of using fertilizer and promote the practice of micro-dosing. |
| Keywords: | Risk elicitation, laboratory experiments in the field, incentives, fertilizer micro-dosing, rural Niger, International Development, Risk and Uncertainty, |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea15:205813&r=upt |
| By: | Robin Cubitt (Department of Economics, University of Nottingham); Simon Gaechter (Department of Economics, University of Nottingham); Simone Quercia (University of Bonn, Institute for Applied Microeconomics) |
| Abstract: | We investigate whether there is a link between conditional cooperation and betrayal aversion. We use a public goods game to classify subjects by type of contribution preference and by belief about the contributions of others; and we measure betrayal aversion for different categories of subject. We find that, among conditional cooperators, only those who expect others to contribute little to the public good are significantly betrayal averse, while there is no evidence of betrayal aversion for those who expect substantial contributions by others. This is consistent with their social risk taking in public goods games, as the pessimistic conditional cooperators tend to avoid contribution to avoid exploitation, whereas the optimistic ones typically contribute to the public good and thus take the social risk of being exploited. |
| Keywords: | public goods game, conditional cooperation, trust, betrayal aversion, exploitation aversion, free riding, experiments |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2015-14&r=upt |
| By: | Tobias Mutter (University of Paderborn); Dennis Kundisch (University of Paderborn) |
| Abstract: | Heath et al. (1999) propose a prospect theory model for goal behavior which offers insights on how goals affect individual and group performance. Their analytical model is based on the assumption that goals inherit the main properties of the prospect theory value function, i.e., reference point dependence, loss aversion, and diminishing sensitivity. Evidence from laboratory experiments as well as first evidence from the field support this modeling choice. In this paper, we complement this work by investigating whether the main properties of the prospect theory value function transfer to goal behavior in the field. In particular, we analyze how individual performance is affected by the presence of goals. For our research, we take user activity data from a popular German Question & Answer community and analyze how users adjust their contribution behavior in the days surrounding goal achievement, where goals are represented by badges. We find that users gradually increase their performance in the days prior to earning a badge, with performance peaking on the day of the promotion. In subsequent days, user performance gradually diminishes again, with the decline being strongest on the day immediately following the badge achievement. Overall, user performance is higher in the days preceding badge achievement, compared to subsequent days. These findings reflect the characteristic S-shape of the prospect theory value function which is convex below the reference point and concave above it. Our results thus support the transferability of the main properties of the prospect theory value function to goal behavior in the field and suggest a distinct shape of the value function around goals. |
| Keywords: | Goal-Setting Theory, Prospect Theory, Value Function, Gamification, Badges |
| JEL: | M52 M31 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:dispap:19&r=upt |
| By: | Sharma, Sankalp; Schoengold, Karina |
| Keywords: | Risk, risk preference, risk premium, insurance, pandel data methods., Production Economics, Risk and Uncertainty, D81, C23, C33, |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea15:205774&r=upt |
| By: | Lee, Ji Yong; Fox, John A. (Sean) |
| Abstract: | We treat a difference in initial bids for two private goods as an endogenous “induced” value. Results from follow up auctions eliciting positive or negative bids to exchange one good for the other suggest that positive WTP bids are demand revealing while subjects tended to overbid (in absolute value) negative WTA values. Controlling for risk attitude in WTA bids is shown to partially explain the WTA overbidding. WTA bids tended to be lower in a random nth price auction compared to those elicited in a 5th price auction. |
| Keywords: | Experimental Auction, Negative Bids, Strategic Bidding, Institutional and Behavioral Economics, |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea15:204984&r=upt |
| By: | Chie Hanaoka; Hitoshi Shigeoka; Yasutora Watanabe |
| Abstract: | We investigate whether individuals’ risk preferences change after experiencing a natural disaster— specifically, the Great East Japan Earthquake in 2011. The novelty of our study is that we use panels of nationally representative surveys, and thus, we can track the changes in risk preferences of the same individuals. We find that people who experienced greater intensity of the Earthquake become more risk tolerant. Interestingly, all the results are driven by men. Furthermore, these men gamble and drink more. Finally, we compare the estimates from cross-sectional and panel specifications, demonstrating that the cross-sectional estimate may be biased due to unobserved heterogeneity. |
| JEL: | C23 D81 J16 Q54 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21400&r=upt |