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on Utility Models and Prospect Theory |
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Issue of 2018‒11‒19
27 papers chosen by |
| By: | Simone Cerreia-Vioglio (Department of Decision Sciences, Bocconi University); David Dillenberger (Department of Economics, University of Pennsylvania); Pietro Ortoleva (Department of Economics, Princeton University) |
| Abstract: | One of the most well-known models of non-expected utility is Gul (1991)’s model of Disappointment Aversion. This model, however, is defined implicitly, as the solution to a functional equation; its explicit utility representation is unknown, which may limit its applicability. We show that an explicit representation can be easily constructed, using solely the components of the implicit one. We also provide a more general result: an explicit representation for preferences in the Betweenness class that also satisfy Negative Certainty Independence (Dillenberger, 2010). |
| Keywords: | Betweenness, Cautious Expected Utility, Disappointment Aversion, Utility representation |
| JEL: | D80 D81 |
| Date: | 2018–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:18-019&r=upt |
| By: | Carlos Alos-Ferrer; Ernst Fehr; Nick Netzer |
| Abstract: | The ability to uncover preferences from choices is fundamental for both positive economics and welfare analysis. Overwhelming evidence shows that choice is stochastic, which has given rise to random utility models as the dominant paradigm in applied microeconomics. However, as is well known, it is not possible to infer the structure of preferences in the absence of assumptions on the structure of noise. This makes it impossible to empirically test the structure of noise independently from the structure of preferences. Here, we show that the difficulty can be bypassed if data sets are enlarged to include response times. A simple condition on response time distributions (a weaker version of first order stochastic dominance) ensures that choices reveal preferences without assumptions on the structure of utility noise. Sharper results are obtained if the analysis is restricted to specific classes of models. Under symmetric noise, response times allow to uncover preferences for choice pairs outside the data set, and if noise is Fechnerian, even choice probabilities can be forecast out of sample. We conclude by showing that standard random utility models from economics and standard drift-diffusion models from psychology necessarily generate data sets fulfilling our sufficient condition on response time distributions. |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1811.02497&r=upt |
| By: | David Dillenberger (Department of Economics, University of Pennsylvania); Daniel Gottlieb (Department of Economics, Washington University in St. Louis); Pietro Ortoleva (Department of Economics, Princeton University) |
| Abstract: | We study how the separation between time and risk preferences relates to a new behavioral property that generalizes impatience to stochastic environments: Stochastic Impatience. We show that Stochastic Impatience holds if and only if risk aversion is \not too high" relative to the inverse elasticity of intertemporal substitution. This result has implications for many known models. For example, in the models of Epstein and Zin (1989) and Hansen and Sargent (1995), Stochastic Impatience is violated for all commonly used parameters. If Stochastic Impatience is taken normatively, this suggests a limit on the amount of separation between time and risk preference; otherwise, it provides a simple one-question test for it. |
| Keywords: | Stochastic Impatience, Epstein and Zin preferences, Separation of Risk and Time preferences, Risk Sensitive Preferences, Non-Expected Utility |
| JEL: | D81 D90 G11 |
| Date: | 2018–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:18-020&r=upt |
| By: | Erhan Bayraktar; Yan Dolinsky; Jia Guo |
| Abstract: | In this paper we find sufficient conditions for the continuity of the utility maximization problem from terminal wealth under convergence in distribution of the underlying processes. We provide several examples which illustrate that without these conditions, we cannot generally expect continuity to hold. Finally, we apply our continuity results to numerical computations of the shortfall risk in the Heston model. |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1811.01420&r=upt |
| By: | Tim Leung; Raphael Yan |
| Abstract: | We study a stochastic control approach to managed futures portfolios. Building on the Schwartz 97 stochastic convenience yield model for commodity prices, we formulate a utility maximization problem for dynamically trading a single-maturity futures or multiple futures contracts over a finite horizon. By analyzing the associated Hamilton-Jacobi-Bellman (HJB) equation, we solve the investor's utility maximization problem explicitly and derive the optimal dynamic trading strategies in closed form. We provide numerical examples and illustrate the optimal trading strategies using WTI crude oil futures data. |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1811.01916&r=upt |
| By: | Vasilev, Aleksandar |
| Abstract: | The purpose of this note is to explore the problem of a non-convex labor supply decision in an economy with unobservable e ort and incentive ("fair") wages a la Danthine and Kurmann (2004), and explicitly perform the aggregation presented there without a formal proof, and thus provide - starting from micro-foundations - the derivation of the expected utility functions used for the aggregate household. We show how lotteries as in Rogerson (1988) can be used to convexify consumption sets, and aggregate over individual preferences. With a discrete labor supply decisions, the elasticity of aggregate labor supply becomes a function of effort. |
| Keywords: | Aggregation,Indivisible labor,Unobservable effort,Fair wages |
| JEL: | E1 J22 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:183580&r=upt |
| By: | Lionel de Boisdeffre (Université Paris1 Panthéon-Sorbonne - Centre d'Economie de la Sorbonne) |
| Abstract: | We consider a pure exchange economy, where agents, typically asymmetrically informed, exchange securities, on financial markets and commodities, on spot markets. Consumers have private characteristics, anticipations and beliefs, and no model to forecast prices. Rational expectation and bounded rationality assumptions are dropped. We show that agents face an incompressible uncertainty, represented by a so-called "minimum uncertainty set". This uncertainty typically adds to the exogenous one, on the state of nature, and 'endogenous uncertainty' over future spot prices. At equilibrium, all agents expect the 'true' price on every spot market as a possible outcome, and elect optimal strategies, ex ante, which clear on all markets, ex post. We show this sequential equilibrium exists whenever agents' prior anticipations embed the minimum uncertainty set. This outcome differs from the standard generic existence results of Hart (1975), Radner (1979), or Duffie-Shaffer (1985), among others, based on the rational expectations of prices |
| Keywords: | sequential equilibrium; temporary equilibrium; perfect foresight; existence; rational expectations, financial markets; asymmetric information; arbitrage |
| JEL: | D52 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:18026&r=upt |
| By: | Matteo M. Marini (LEE & Economics Department, Universitat Jaume I, Castellón, Spain; Economics Department, Università degli Studi dell’Insubria, Italy) |
| Abstract: | The paper is a meta-analysis of experimental studies dealing with the impact of incidental emotions on risky choices, so as to explain traditional heterogeneity of outcomes in the field. After performing an advanced search in Google Scholar and filtering out studies that do not match a list of selection criteria, I include 16 manuscripts from which 46 observations are drawn at the treatment level. At this point, I code a set of moderator variables representing experimental protocols and calculate Cohen (1988)’s d effect size as dependent variable of a weighted least squares (WLS) regression where larger studies are given more weight. Among the results, which are robust to different techniques for computing standard errors, I find that emotions induce higher risk aversion when a multiple price list à la Holt and Laury (2002) is used in place of revealed preferences methods, as well as in case the risk elicitation task is framed as an investment decision instead of an abstract choice. Given the variety of procedures employed in this type of experiments and in the absence of a tailor-made game to answer such research questions, I recommend faithful study replication as preferential path in order to investigate the influence of emotions on risky decision making and ensure comparability. |
| Keywords: | meta-analysis, experimental design, emotions, risky decision-making, effect size |
| JEL: | C90 D81 D91 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2018/14&r=upt |
| By: | Franz Dietrich (Centre d'Economie de la Sorbonne Author-Workplace-Homepage: https://centredeconomiesorbonne.univ-paris1.fr); Antonios Staras (University of East Anglia); Robert Sugden (University of East Anglia) |
| Abstract: | John Broome has developed an account of rationality and reasoning which gives philosophical foundations for choice theory and the psychology of rational agents. We formalize his account into a model that differs from ordinary choice-theoretic models through focusing on psychology and the reasoning process. Within that model, we ask Broome's central question of whether reasoning can make us more rational: whether it allows us to acquire transitive preferences, consistent beliefs, non-akratic intentions, and so on. We identify three structural types of rationality requirements: consistency requirements, completeness requirements, and closedness requirements. Many standard rationality requirements fall under this typology. Based on three theorems,we argue that reasoning is successful in achieving closedness requirements, but not in achieving consistency or completeness requirements. We assess how far our negative results reveal gaps in Broome's theory, or deficiencies in choice theory and behavioural economics |
| Keywords: | rationality; reasoning; intention; beliefs; preferences; consistency; completeness; deductive closure |
| JEL: | D01 D80 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:18030&r=upt |
| By: | OGAWA Eiji; MUTO Makoto |
| Abstract: | Ogawa and Muto (2017a, 2017b) estimated time series of coefficients on five international currencies (the US dollar, the euro, the Japanese yen, the British pound, and the Swiss franc) in a utility function. We call the coefficients as utility of an international currency. The time series show that utility of the US dollar as an international currency has kept at the first position in the changing international monetary system where the euro created as a single common currency in European countries. On one hand, utility of the Japanese yen has been declining as an international currency. In this paper, we investigate what determines utility of the international currencies. We use a dynamic panel data model to analyze the issue with GMM. Specifically, liquidity shortage in terms of an international currency means that it is inconvenient for economic agents to use the relevant currency for international economic transactions. In other words, the liquidity shortage might reduce utility of an international currency. In this analysis we focus on liquidity premium which represents liquidity shortage in terms of an international currency. Our empirical results showed not only inertia in terms of change but also an impact of the liquidity shortage in an international currency on utility of the relevant international currency. |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:18077&r=upt |
| By: | Dirk Krueger (Department of Economics, University of Pennsylvania); Alexander Ludwig (Department of Economics, Goethe-Universität Frankfurt) |
| Abstract: | We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of private precautionary saving. For logarithmic utility our full analytical solution of the Ramsey problem shows that the optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently generates a Pareto-improving transition even if the initial equilibrium is dynamically efficient. We generalize our results to Epstein-Zin-Weil utility and show that the optimal steady state saving rate is increasing in income risk if and only if the intertemporal elasticity of substitution is smaller than 1. |
| Keywords: | Idiosyncratic Risk, Taxation of Capital, Overlapping Generations, Precautionary Saving, Pecuniary Externality |
| JEL: | H21 H31 E21 |
| Date: | 2018–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:18-004&r=upt |
| By: | James Andreoni; Christina Gravert; Michael A. Kuhn; Silvia Saccardo; Yang Yang |
| Abstract: | If experimental subjects arbitrage against market interest rates when making intertemporal allocations of cash, the data will reveal nothing about subjects' discount rates, only uncovering subjects' market interest rates. If they frame choices narrowly, market rates will not be salient and the experiment will uncover subjects' utility discount rates. We test arbitrage directly by forcing all transactions with subjects to be instant electronic bank transfers, thus making arbitrage easy and salient. We also employ four decision frames to test alternative hypotheses. Our evidence contradicts arbitrage, supports money as a valid reward, and suggests framing as a correlate with present bias. |
| JEL: | C18 C91 D87 D9 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25232&r=upt |
| By: | Franz Dietrich (Centre d'Economie de la Sorbonne Author-Workplace-Homepage: https://centredeconomiesorbonne.univ-paris1.fr); Brian Jabarian (Centre d'Economie de la Sorbonne) |
| Abstract: | How should we evaluate options when we are uncertain about the correct standard of evaluation, for instance due to conflicting normative intuitions? Such 'normative' uncertainty differs from ordinary 'empirical' uncertainty about an unknown state, and raises new challenges for decision theory and ethics. The most widely discussed proposal is to form the expected value of options, relative to correctness probabilities of competing valuations. We show that the expected-value theory is just one of four natural expectation-based theories. These theories differ in the attitudes to normative risk and to empirical risk. The ordinary expected-value theory imposes neutrality to normative risk, whereas its attitude to empirical risk is impartial, i.e., determined by the risk attitudes of the competing valuations deemed possible. The three other theories are, respectively, neutral to both types of risk; impartial to both types of risk; or neutral to empirical but impartial to normative risk. We conditionally defend the theory which is impartial to all risk - the impartial value theory - on the grounds that it respects risk-attitudinal beliefs rather than imposing an ad-hoc risk attitude. Mean-while, our analysis shows how one can address empirical and normative uncertainty within a unified formal framework, and rigorously define risk attitudes of theories |
| Keywords: | empirical uncertainty; normative uncertainty; risk attitude; expected value; impartial value |
| JEL: | D81 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:18029&r=upt |
| By: | Chang, C-L.; McAleer, M.J.; Wong, W.-K. |
| Abstract: | This note is concerned with an editorial statement of intent for Advances in Decision Sciences (ADS), which was founded in 1997, so that 2918 marks the 22nd Anniversary of the journal. The note discusses the aims and scope of ADS in Section 1, innovative topics in all fields of optimal decision making in Section 2, invitation to submit papers to ADS in Section 3, editors and members of the editorial board in Section 4, and acknowledgements in Section 5 |
| Keywords: | Decision making, aims and scope, innovative topics, optimality, areas and topics of interest |
| JEL: | C44 D81 D91 G11 M51 |
| Date: | 2018–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:111557&r=upt |
| By: | Gabaix, Xavier |
| Abstract: | Inattention is a central, unifying theme for much of behavioral economics. It permeates such disparate fields as microeconomics, macroeconomics, finance, public economics, and industrial organization. It enables us to think in a rather consistent way about behavioral biases, speculate about their origins, and trace out their implications for market outcomes. This survey first discusses the most basic models of attention, using a fairly unified framework. Then, it discusses the methods used to measure attention, which present a number of challenges on which a great deal of progress has been achieved, although much more work needs to be done. It then examines the various theories of attention, both behavioral and more Bayesian. It finally discusses some applications. For instance, inattention offers a way to write a behavioral version of basic microeconomics, as in consumer theory and Arrow-Debreu. A last section is devoted to open questions in the attention literature. This chapter is a pedagogical guide to the literature on attention. Derivations are self-contained. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13268&r=upt |
| By: | Dina Tasneem; Audrey Azerot; Marine de Montaignac; Jim Engle-Warnick |
| Abstract: | We report results from an on-line economics experiment that examines the effect of nudging retirement savings decisions. In the experiments, participants make decisions in a finitely repeated retirement savings game, in which income during working years is uncertain, and retire-ment age is known. Participants, who are household financial decision-makers, are nudged with automatic savings in each period of the game. We find that that the nudge simply replaced nat-ural decision-making observed in the absence of a nudge in this experiment, even to the extent that it resulted in nearly identical inferred decision rules. This surprising result highlights the unpredictability of the effect of nudging human behavior. |
| Keywords: | Precautionary Savings,Retirement Savings,Life-cycle Models,Dynamic Optimization,Decision Heuristics,Nudge,Choice Architecture, |
| JEL: | C91 E21 C61 |
| Date: | 2018–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2018s-23&r=upt |
| By: | Andrew Caplin; Dániel Csaba; John Leahy; Oded Nov |
| Abstract: | Costs of attention, while central to choice behavior, have proven hard to measure. We introduce a simple method of recovering them from choice data. Our recovery method rests on the observation that costs of attention play precisely the same role in consumer choice as do a competitive firm's costs of production in its supply decision. This analogy extends to welfare analysis: consumer welfare net of attention costs is measured in precisely the same way as the profits of a competitive firm. We implement our recovery method in a purpose-built experiment. We quantitatively assess the trade-off between reward level and task complexity. Estimated attention costs are highly correlated with decision time, an important common input in process-based models of attention. |
| JEL: | C14 C91 D01 D04 D11 D6 D8 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25224&r=upt |
| By: | Lionel de Boisdeffre (Université Paris1 Panthéon-Sorbonne - Centre d'Economie de la Sorbonne) |
| Abstract: | The paper demonstrates the existence of sequential equilibria in a pure exchange economy, where asymmetrically informed agents exchange consumption goods and securities of all kinds, on incomplete markets. Standard models rely on Radner's (1972, 1979) rational expectation assumptions, along which agents know the maps between the information signals, the states of nature and the equilibrium prices. As shown by Hart (1975), equilibrium may then fail to exist, even when agents have symmetric information and smooth preferences. In that setting, Duffie-Shafer (1985) shows from differential topology arguments, that interior equilibria exist generically. The current paper proceeds differently. It drops rational expectations to allow for an infinitesimal uncertainty over future spot prices. This device permits to circumvent Hart's 1975 problem, without using differential topology. Then, the paper shows that a generic condition on payoffs and forecasts guarantees the exostence of equilibria. It is consistent with non-transitive preferences, non-interior consumptions, asymmetric information and normalized spot prices at equilibrim. It also serves to prove existence in a more general model, which drops Radner's rational expectations |
| Keywords: | sequential equilibrium; perfect foresight; existence of equilibrium; rational expectations; financial markets; asymmetric information; arbitrage |
| JEL: | D52 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:18027&r=upt |
| By: | Della Giusta, Marina; Di Girolamo, Amalia |
| Abstract: | There is a large body of evidence documenting gender differences in preferences and their effects on a range of behaviours (including health and risky behaviours) and choices (including education, labour market, savings, marriage, and fertility). A key issue in order to mitigate some of the undesirable effects of these differences (the tendency for boys to engage in more risky behaviours or for girls to avoid choices that might instead benefit them) is establishing how soon such differences arise. Gender differences in competitiveness and risk aversion have been widely documented both in the lab and the field (Falk et al, 2015), and more recently adapting experiments normally performed with adults to children (Samak, 2013; Harbaugh et al., 2002). We advance this literature with a study of primary school children which consists of an innovative two-stage task game addressing both effort and risk: in the first stage a real effort task allows children to accumulate points playing a video game, and in the second they play a lottery game in which probabilities are presented visually. The two-stage task game is designed in order to avoid both the valuation and the probability problems that children normally face in such tasks. Our findings confirm the existence of gender differences in risk aversion once controlling for performance in a gender neutral task in schoolchildren, and contribute a visual way of using lotteries with children that yields results consistent with rational behaviour |
| Keywords: | Gender; Risk Aversion; Child Preferences; Artefactual Field Experiment |
| JEL: | C79 C90 D81 J70 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89528&r=upt |
| By: | Delia Coculescu; Freddy Delbaen |
| Abstract: | We use the theory of coherent measures to look at the problem of surplus sharing in an insurance business. The surplus share of an insured is calculated by the surplus premium in the contract. The theory of coherent risk measures and the resulting capital allocation gives a way to divide the surplus between the insured and the capital providers, i.e. the shareholders. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1811.02530&r=upt |
| By: | Krueger, Dirk; Ludwig, Alexander (Munich Center for the Economics of Aging (MEA)) |
| Abstract: | [English] We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of private precautionary saving. For logarithmic utility our full analytical solution of the Ramsey problem shows that the optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently generates a Pareto-improving transition even if the initial equilibrium is dynamically efficient. We generalize our results to Epstein-Zin-Weil utility and show that the optimal steady state saving rate is increasing in income risk if and only if the intertemporal elasticity of substitution is smaller than 1. [German] Sollten Kapitaleinkommen besteuert werden? Diese Frage hat in der Theorie der optimalen Besteuerung und in ihrer quantitativen Anwendung schon eine lange Reihe ökonomischer Literatur beschäftigt. Frühere Antworten zu dieser Frage, unter Verwendung relativ stilisierter ökonomischer Rahmenbedingungen, waren negativ. Das bedeutet, die Literatur kam zu dem Schluss, dass optimale Kapitaleinkommenssteuern null seien. Dies steht im Gegensatz zu den hohen Steuern auf Kapitaleinkommen, die in allen Industriestaaten zu beobachten sind. Eine aktuellere, größtenteils quantitative Literatur fand hingegen heraus, dass optimale Kapitaleinkommenssteuern positiv sein sollten. Gründe für diese Feststellung sind, dass zum einen Kapitaleinkommenssteuern ein effektiver Ersatz für fehlende altersabhängige Einkommenssteuern sein können, zum anderen dass sie ein effektives umverteilendes Steuerinstrument sind (von einkommensstarken zu einkommensschwachen Haushalten), und zum dritten, dass die Besteuerung von Kapitaleinkommen eine Absicherung gegen Einkommens- oder Renditeschocks aus der ex-ante Perspektive darstellen. Unser theoretisches Paper gibt neue analytische Einsichten für Gründe für optimale Steuern auf Kapitaleinkommen, die Aufschluss darüber geben, welche Mechanismen die Resultate in der überwiegend quantitativen Literatur treiben. Wir legen den Fokus auf einen Effekt, der bisher in der Literatur keine explizite Aufmerksamkeit erfahren hat, der jedoch implizit in zahlreichen quantitativen Studien über optimale Kapitaleinkommenssteuern präsent ist. In Gegenwart von Einkommensrisiken und unvollständiger Absicherung gegen diese, sichern sich Haushalte gegen niedrige Einkommensrealisierung durch privates Sparen ab. Wir zeigen, dass ein solches vorsorgendes Sparverhalten negative Effizienzwirkungen in der aggregierten Volkswirtschaft haben kann, insbesondere für die Renditen aus Kapitalanlagen. Der Staat internalisiert dieses negative Feedback. Wenn diese negativen Feedback-Effekte stark genug sind, dann sollten optimale Kapitaleinkommenssteuern positiv sein. Um diese Einsichten in all ihrer theoretischen Klarheit abzuleiten, halten wir das ökonomische Umfeld, das wir betrachten, sehr stilisiert. Während wir dadurch sehr klare und trennscharfe Charakterisierungen der treibenden Kräfte der optimalen Kapitaleinkommenssteuern liefern können, ist es trotzdem wichtig zu betonen, dass unser theoretischer Beitrag nicht beabsichtigt, ein realistisches ökonomisches Modell für eine quantitative Exploration zu stellen. Folglich ist der Hauptzweck unserer Analyse, hilfreiche Einsichten für eine verbesserte Interpretation der Erkenntnisse in der existierenden quantitativen Literatur über optimale Kapitaleinkommenssteuern zu bieten. |
| JEL: | H21 H31 E21 |
| Date: | 2018–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:mea:meawpa:201802&r=upt |
| By: | Goldin, Jacob; Reck, Daniel |
| Abstract: | In many settings, decision-makers' behavior is observed to vary based on seemingly arbitrary factors. Such framing effects cast doubt on the welfare conclusions drawn from revealed preference analysis. We relax the assumptions underlying that approach to accommodate settings in which framing effects are present. Plausible restrictions of varying strength permit either partial- or point-identification of preferences for the decision-makers who choose consistently across frames. Recovering population preferences requires understand- ing the empirical relationship between decision-makers' preferences and their sensitivity to the frame. We develop tools for studying this relationship and illustrate them with data on automatic enrollment into pension plans. |
| Keywords: | Behavioral economics; behavioral welfare analysis; framing effects; revealed preferences |
| JEL: | C10 D60 I30 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13232&r=upt |
| By: | Guan, L.; Jin, S.; Huang, Z. |
| Abstract: | Time preference has been recognized by numerous studies as an important driver of a number of health-related behaviors such as fatness, smoking and food choices. However, its possible role in food nutrition information search has been widely neglected. This study aims to examine directly if food nutrition information search is associated with the behavioral inclinations in time preference in China. Based on theoretical analysis, this paper illustrated that individuals with lower time preference stress more on future utility and tend to search more nutrition information. In empirical investigation, time preference was elicited in two ways: psychological perspective and monetary perspective. Data for the analysis were collected in 10 cities of 5 provinces in China through face-to-face interviews on sample of 1220 Chinese consumers undertaken in 2016. In the psychological perspective, this paper found that future-oriented (low time preference) individuals were more likely to search food nutrition information both in nutrition facts panels and nutrition claims. In monetary perspective, this paper found that only time-consistent long-run patience had a weak impact on food nutrition information search. Different significance between monetary and psychological health domain results confirmed the existence of domain independence. Acknowledgement : The authors would like to thank research assistant Haiyue Guo, Yue Jin, Changhua Qian, Rao Yuan, Zhanyi Shi, Yu Jiang for their helpful support. We gratefully acknowledge the support from the National Natural Science Foundation of China (NNSFC-71273233, 71333011) and the Major Program of the Key Research Institute of Chinese Ministry of Education (No. 15JJD790032). |
| Keywords: | Consumer/Household Economics |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae18:277205&r=upt |
| By: | Chang, C-L.; McAleer, M.J.; Wong, W.-K. |
| Abstract: | This note is concerned with an editorial statement of intent for Advances in Decision Sciences (ADS), which was founded in 1997, so that 2918 marks the 22nd Anniversary of the journal. The note discusses the aims and scope of ADS in Section 1, innovative topics in all fields of optimal decision making in Section 2, research areas of interest to ADS in Section 3, invitation to submit papers to ADS in Section 4, editors and members of the editorial board in Section 5, and acknowledgements in Section 6. |
| Keywords: | Decision making, aims and scope, innovative topics, optimality, areas and topics, of interest. |
| JEL: | C44 D81 D91 G11 M51 |
| Date: | 2018–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:111613&r=upt |
| By: | Dina Tasneem; Jim Engle-Warnick |
| Abstract: | We report results from an experiment that compares precautionary savings behavior with retirement savings behavior. We find that more than 30% of precautionary savings behavior can be categorized as optimal or near optimal, while virtually all of this behavior disappears in favor of simple decision rules that specify constant consumption in each period when retirement savings is added as a motive. We discuss the the costs and benefits of these rules, which make a complex decision-making environment manageable. Our experiment is the first to identify how decision-making changes when agents are required to save for retirement. |
| Keywords: | Precautionary Savings,Retirement Savings,Dynamic Optimization,Decision Heuristics, |
| JEL: | C91 E21 C61 |
| Date: | 2018–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2018s-22&r=upt |
| By: | Mele, Antonio (University of Surrey); Molnar, Krisztina (Dept. of Economics, Norwegian School of Economics and Business Administration); Santoro, Sergio (Bank of Italy) |
| Abstract: | The main advantage of price level stabilization compared with inflation stabilization rests on the central bank's ability to shape expectations. We show that stabilizing prices is no longer optimal when the central bank can shape expectations of agents with incomplete knowledge, who have to learn about the policy implemented. Disinating in the short run more than agents expect generates short-term gains without triggering an abrupt loss of confidence, because agents update expectations sluggishly. Following this policy, in the long run, the central bank loses the ability to shape agents' beliefs, and the economy converges to a rational expectations equilibrium in which policy does not stabilize prices, economic volatility is high, and agents su er the corresponding welfare losses. However, these losses are outweighed by short-term gains from the learning phase. |
| Keywords: | Price; stabilization |
| JEL: | C62 D83 D84 E52 |
| Date: | 2018–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2018_022&r=upt |
| By: | Marko Van Deventer (North-West University) |
| Abstract: | A widespread search of four large online academic databases, namely Sabinet Reference, EBSCOhost, Google Scholar and Emerald showed no evidence of a validated attitudes-towards-personal-financial-planning scale within the South African context. To fill this gap in the literature, the aim of this study was to describe the process undertaken to validate attitudes towards personal financial planning as a 13-factor structure within the South African context. The study followed a descriptive and single cross-sectional research design and used a survey self-administered questionnaire to collect the required data from a convenience sample of 334 Generation Y students registered at the campuses of two Gauteng-based public South African universities. The data analysis techniques comprised Pearson?s product-moment correlation analysis, multicollinearity analysis, reliability measures and confirmatory factor analysis using the maximum likelihood method. The findings of the analysis validate that the proposed measurement model of utility and trust in mobile banking is a 13-factor structure that consists of attitudes towards mobile banking, perceived ease of use, perceived behavioural control, perceived self-efficacy, trust in mobile banking, perceived integrity of the mobile bank, perceived relative advantage, perceived compatibility, behavioural intention to use mobile banking, perceived structural assurance, perceived information quality, perceived system quality and subjective norms. In addition, the measurement model revealed evidence of internal-consistency reliability, composite reliability, construct, convergent, discriminant and nomological validity. Furthermore, the measurement model displayed no evidence of multicollinearity between the factors and the goodness-of-fit indices produced by AMOS suggested a well-fitting model. |
| Keywords: | Utility; trust; mobile banking; confirmatory factor analysis; South Africa |
| JEL: | G20 M31 O30 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:ibmpro:6809984&r=upt |