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Contents
(in new windows)
1. News 2. Events (2009 December November October September August July June May April March February January 2008 Undated 2007 Undated ) 3. Utility Problems (St. Petersburg Paradox Allais Paradox Equity Premium Puzzle Risk Aversion Gains and Losses Loss Aversion Overweighting of low Probabilities Underweighting of high Probabilities "Four-Fold-Pattern" Shape of Probability Weighting Function Ellsberg Paradox Preference Reversals ) 4. New Approach. Principle of Uncertain Future 5. Solution of Problems (of St. Petersburg Paradox of Allais Paradox of Equity Premium Puzzle of Risk Aversion of Gains and Losses of Loss Aversion of Overweighting of low Probabilities of Underweighting of high Probabilities of "Four-Fold-Pattern" of Shape of Probability Weighting Function of Ellsberg Paradox of Preference Reversals )
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Utility & Prospect & Decision Theories Metadata
1. News Thermoeconomics - A Thermodynamic Approach to Economics John Bryant Books from Economic Consultancy, Vocat Internation... 2009 Abstract Measuring the Output and Prices of the Lottery Sector: An Application of Implicit Expected Utility Theory Kam Yu NBER Chapters from National Bureau of Economic Res... 2009 Abstract The shape of the utility function under risk in the loss domain and the "ruinous losses" hypothesis: some experimental results Nathalie Etchart-Vincent Economics Bulletin 2009 Abstract A simple test for the violation of the non-satiation axiom under uncertainty: The theory Robert Sproule and Calin Valsan Economics Bulletin 2009 Abstract The origin of utility: Sexual selection and conspicuous consumption Gianni De Fraja Journal of Economic Behavior & Organization 2009 Abstract Integration of VaR and expected utility under departures from normality Peter J. Barry, Bruce J. Sherrick and Jianmei Zhao Agricultural Economics 2009 Abstract
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Utility & Prospect & Decision Theories Metadata
2. Events See also New Economics Papers nep-upt Utility Models & Prospect Theory
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2008
Top
Metadata added/revised in December
Thermoeconomics - A Thermodynamic Approach to Economics John Bryant Books from Economic Consultancy, Vocat Internation... 2009 Abstract Comparison of Mean-Variance Theory and Expected-Utility Theory through a Laboratory Experiment Andrea Morone Economics Bulletin 2008 Abstract Measuring the Output and Prices of the Lottery Sector: An Application of Implicit Expected Utility Theory Kam Yu NBER Chapters from National Bureau of Economic Res... 2009 Abstract The shape of the utility function under risk in the loss domain and the "ruinous losses" hypothesis: some experimental results Nathalie Etchart-Vincent Economics Bulletin 2009 Abstract A simple test for the violation of the non-satiation axiom under uncertainty: The theory Robert Sproule and Calin Valsan Economics Bulletin 2009 Abstract Top
Metadata added/revised in November
A Note on Utility Maximization with Unbounded Random Endowment Keita Owari Institute of Economic Research, Hitotsubashi Unive... 2009-10 Abstract The origin of utility: Sexual selection and conspicuous consumption Gianni De Fraja Journal of Economic Behavior & Organization 2009 Abstract A Reexamination of the Relationship between Preferences and Moment Orderings by Rational Risk Averse Investors P. L. Brockett and J. R. Garven Risk and Insurance Archive 2009 Abstract Integration of VaR and expected utility under departures from normality Peter J. Barry, Bruce J. Sherrick and Jianmei Zhao Agricultural Economics 2009 Abstract Top
Metadata added/revised in October
How Sapient is Homo Economicus? The Evolutionary Origins of Trade, Ethics and Economic Rationality Kaushik Basu esocialsciences.com 2009 Abstract Robust Exponential Hedging in a Brownian Setting Keita Owari Institute of Economic Research, Hitotsubashi Unive... 2009-09 Abstract Utility-Based Utility David Cass Penn Institute for Economic Research, Department o... 2008 Abstract Top
Metadata added/revised in September
Distortion of probability and outcome information in risky decisions Michael L. DeKay, Patino-Echeverri, Dalia and Paul S. Fischbeck Organizational Behavior and Human Decision Process... 2009 Abstract When is there state independence? Brian Hill Journal of Economic Theory 2009 Abstract Parametric weighting functions Enrico Diecidue, Ulrich Schmidt and Horst Zank Journal of Economic Theory 2009 Abstract Elementary non-Archimedean utility theory Frederik S. Herzberg Mathematical Social Sciences 2009 Abstract Top
Metadata added/revised in August
Utility Maximization with a Stochastic Clock and an Unbounded Random Endowment Gordan Zitkovic arXiv.org 2007 Abstract Utility function estimation: the entropy approach Andreia Dionisio and A. Heitor Reis arXiv.org 2007 Abstract Utility Maximization in a jump market model Morlais, Marie-Amelie arXiv.org 2008 Abstract Top
Metadata added/revised in July
Decision Making and Trade without Probabilities Jack Douglas Stecher, Radhika Lunawat, Kira Pronin and John DIckhaut CIRANO 2007 Abstract Expected utility versus the changes in knowledge ahead Robin Pope, Johannes Leitner and Leopold-Wildburger, Ulrike European Journal of Operational Research 2009 Abstract On the futility of criticizing Simon?s rational choice model Gustavo Marques and Diego Weisman Economia 2008 Abstract Top
Metadata added/revised in June
A CLOSER LOOK AT UTILITY MAXIMISED BY ECONOMIC AGENTS Michal Skorepa Politicka ekonomie 2008 Abstract Vector Expected Utility and Attitudes Toward Variation Marciano Siniscalchi Econometrica 2009 Abstract Top
Metadata added/revised in May
THE UTILITY OF THE CONSUMER FROM THE ANCIENTS TO THE CLASSICS Cristina Gabriela ZAMFIR and Gabriela VIRLAN EuroEconomica 2009 Abstract Evolution of Time Preferences and Attitudes Towards Risk Nick Netzer Thurgauer Wirtschaftsinstitut, Universitat Konstan... 2008 Abstract Spatial choice: a matter of utility or regret? Caspar G Chorus, Theo A Arentze and Harry J P Timmermans Environment and Planning B: Planning and Design 2009 Abstract Top
Metadata added/revised in April
A Parametric Analysis of Prospect Theory's Functionals for the General Population Adam S. Booij, Bernard M.S. van Praag and Gijs Van De Kuilen CESifo GmbH 2009 Abstract Text Testing expected utility maximization under price and quantity risk with a heterogeneous panel Yucan Liu and C. Richard Shumway Applied Economics 2009 Abstract A simple model of cumulative prospect theory Ulrich Schmidt and Horst Zank Journal of Mathematical Economics 2009 Abstract A More General Non-expected Utility Model as an Explanation of Gambling Outcomes for Individuals and Markets David Peel and David Law Economica 2009 Abstract Top
Metadata added/revised in March
Nozick, Ramsey, and Symbolic Utility Wesley Cooper Utilitas 2008 Abstract Comparing Fuzzy and Probabilistic Approaches to Preference Uncertainty in Non-Market Valuation Lili Sun and G. Kooten Environmental & Resource Economics 2009 Title Pricing jump risk with utility indifference Lixin Wu and Min Dai Quantitative Finance 2009 Abstract Investment strategies in the long run with proportional transaction costs and a HARA utility function Petr Dostal Quantitative Finance 2009 Abstract Top
Metadata added/revised in February
Would a risk-averse newsvendor order less at a higher selling price? Charles X. Wang, Scott Webster and Nallan C. Suresh European Journal of Operational Research 2009 Abstract Risk-averse order policies with random prices in complete market and retailers' private information Charles S. Tapiero and Konstantin Kogan European Journal of Operational Research 2009 Abstract Dominance among alternatives in random utility models Ennio Cascetta and Andrea Papola Transportation Research Part A: Policy and Practic... 2009 Abstract Top
Metadata added/revised in January
Decentralized trade, random utility and the evolution of social welfare Michihiro Kandori, Roberto Serrano and Oscar Volij Journal of Economic Theory 2008 Abstract An axiomatic account of status quo-dependent non-expected utility: Pragmatic constraints on rational choice under risk Gebhard Geiger Mathematical Social Sciences 2008 Abstract A reformulation of the maxmin expected utility model with application to agency theory Edi Karni Journal of Mathematical Economics 2009 Abstract Debreu-like properties of utility representations A. Caserta, A. Giarlotta and S. Watson Journal of Mathematical Economics 2008 Abstract Stochastic utility theorem Pavlo R. Blavatskyy Journal of Mathematical Economics 2008 Abstract Something for nothing: A model of gambling behavior John Nyman, John W. Welte and Bryan E. Dowd The Journal of Socio-Economics 2008 Abstract Top
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Metadata added/revised in 2008 Undated
Explaining the characteristics of the power (CRRA) utility family Peter P. Wakker Health Economics 2008 Abstract Asymmetric or symmetric time preference and discounting in many facets of economic theory: A miscellany Paul Samuelson Journal of Risk and Uncertainty 2008 Title A Geometric Measure for the Violation of Utility Maximization Jan Heufer Rheinisch-Westfalisches Institut fur Wirtschaftsfo... 2008-09 Abstract Text Ranking completely uncertain decisions by the uniform expected utility criterion Nicolas Gravel, Thierry Marchant and Arunava Sen Institut d'economie publique (IDEP), Marseille, Fr... 2007-07 Abstract Text Calibration Results for Non-Expected Utility Theories Zvi Safra and Uzi Segal Econometrica 2008 Abstract How can a psychologist inform economics? The strange case of Sidney Siegel Alessandro Innocenti Department of Economic Policy, Finance and Develop... 2008-07 Abstract An Experimental Investigation of Alternatives to Expected Utility Using Pricing Data Andrea Morone and Ulrich Schmidt Economics Bulletin 2008 Abstract Text A new approach to modeling decision-making under uncertainty Edi Karni Economic Theory 2007 Title A tractable method to measure utility and loss aversion under prospect theory Mohammed Abdellaoui, Han Bleichrodt and Olivier L’Haridon Journal of Risk and Uncertainty 2008 Title Utility of gambling II: risk, paradoxes, and data R. Luce, C. Ng, A. Marley and Janos Aczel Economic Theory 2008 Title Walrasian Solutions Without Utility Functions C-Rene Dominique University Library of Munich, Germany 2008 Abstract Text Non-classical expected utility theory with application to type indeterminacy Vladimir I. Danilov and Ariane Lambert-Mogiliansky PSE (Ecole normale superieure) 2007 Abstract Text Decision Making and Trade without Probabilities Jack Douglas Stecher, Radhika Lunawat, Kira Pronin and John Dickhaut CIRANO 2007-10 Abstract Text Expected utility inequalities: theory and applications Eduardo Zambrano Economic Theory 2008 Title Economics is philosophy, economics is not science Rupert Read International Journal of Green Economics 2007 Abstract Relativity, Rank and the Utility of Income Matthew D. Rablen Economic Journal 2008 Abstract Great Expectations. Part I: On the Customizability of Generalized Expected Utility Francis Chu and Joseph Halpern Theory and Decision 2008 Title On Ordinal Utility, Cardinal Utility and Random Utility Richard Batley Theory and Decision 2008 Title Risk preferences and changes in background risk Donald Keenan, Donald Rudow and Arthur Snow Journal of Risk and Uncertainty 2008 Title Generalized expected utility, heteroscedastic error, and path dependence in risky choice David Buschena and David Zilberman Journal of Risk and Uncertainty 2008 Title Utility function of fuzzy preferences on a countable set under max-*-transitivity Louis Fono and Nicolas Andjiga Social Choice and Welfare 2007 Title ANTICIPATED UTILITY AND RATIONAL EXPECTATIONS AS APPROXIMATIONS OF BAYESIAN DECISION MAKING Timothy Cogley and Thomas Sargent International Economic Review 2008 Abstract A Model of Utility Smoothing Katsutoshi Wakai Econometrica 2008 Abstract Interpretations Of Utility And Their Implications For The Valuation Of Health Paul Dolan and Daniel Kahneman Economic Journal 2008 Abstract Top
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Metadata added/revised in 2007 Undated
Non-classical expected utility theory with application to type indeterminacy Vladimir I. Danilov and Ariane Lambert-Mogiliansky PSE (Ecole normale superieure) 2007 Abstract Text Comparison of Mean-Variance Theory and Expected-Utility Theory through a Laboratory Experiment Andrea Morone Dipartimento di Scienze Economiche - Universita di... 2007-10 Abstract Text Institutions for Intuitive Man Engel Christoph Max Planck Institute for Research on Collective Go... 2007-08 Abstract Text Parametric Weighting Functions Enrico Diecidue, Ulrich Schmidt and Horst Zank Christian-Albrechts-University of Kiel, Department... 2007 Abstract Text An Experimental Investigation of Alternatives to Expected Utility Using Pricing Data Andrea Morone and Ulrich Schmidt Christian-Albrechts-University of Kiel, Department... 2006 Abstract Text Risk Aversion, Wealth, and Background Risk Luigi Guiso and Monica Paiella European University Institute 2007 Abstract Text What Determines the Shape of the Probability Weighting Function? Fehr-Duda, Helga, Marc Schurer and Renate Schubert CER-ETH - Center of Economic Research (CER-ETH) at... 2006 Abstract Text Explaining the anomalies of the exponential discounted utility model Ali al-Nowaihi and Sanjit Dhami Department of Economics, University of Leicester 2007-09 Abstract Text Imprecision as an Account of the Preference Reversal Phenomenon David J. Butler and Graham C. Loomes American Economic Review 2007 Abstract About: "... any successful descriptive theory of choice and valuation will need to allow in some way for the imprecision ..." A New Method of Estimating Risk Aversion Raj Chetty American Economic Review 2006 Abstract Prospect-theory’s Diminishing Sensitivity Versus Economics’ Intrinsic Utility of Money: How the Introduction of the Euro can be Used to Disentangle the Two Empirically Peter Wakker, Veronika Kobberling and Christiane Schwieren Theory and Decision 2007 Abstract Risk aversion and expected-utility theory: A calibration exercise Laura Schechter Journal of Risk and Uncertainty 2007 Abstract Valuing A Risky Prospect Less Than Its Worst Outcome: Uncertainty Effect or Task Ambiguity? Andreas Ortmann, Alexandra Prokosheva, Ondrej Rydval and Ralph Hertwig Friedrich-Schiller-University Jena, Max-Planck-Ins... 2007-07-18 Abstract Text The Origin of Utility Gianni De Fraja C.E.P.R. Discussion Papers 2006 Abstract Experienced Utility as a Standard of Policy Evaluation Daniel Kahneman and Robert Sugden Environmental & Resource Economics 2005 Abstract The Behavioralist Meets the Market: Measuring Social Preferences and Reputation Effects in Actual Transactions John A. List Journal of Political Economy 2006 Abstract Text of the corresponding Working Paper On the Paradigm of Loss Aversion Horst Zank School of Economics, The University of Manchester 2007 Title Would You Be Happier If You Were Richer? A Focusing Illusion Daniel Kahneman, Alan Krueger, David Schkade, Norbert Schwarz and Arthur Stone Princeton University, Department of Economics, Cen... 2006 Abstract Text Top
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3. Utility Problems & Paradoxes
(more)
The Allais paradox (modified)
Suppose Mr. Somebody offers you a choice of only one of the following: A guaranteed gain of $99. Or A lottery: The gain of $100 with the probability P(preliminary) = 99% or $0 with the (preliminary) probability 1%. The mathematical expectations of guarantee and lottery outcomes are exactly the same. But people chose the guaranteed gain instead of the lottery. Top
Gains and Losses
Compare two experiments: 1) Mr. Somebody offers you a choice of only one of the following: A guaranteed gain of $99. Or A lottery: The gain of $100 with the probability P(preliminary) = 99% or $0 with the (preliminary) probability 1%. 2) Mr. Somebody offers you a choice of only one of the following: A guaranteed loss of $99. Or A lottery: The loss of $100 with the probability P(preliminary) = 99% or $0 with the (preliminary) probability 1%. The mathematical expectations of the guarantee and lottery outcomes are exactly the same in both experiments. But in similar experiments, the overwhelming majority of people chose: - in the case of gains - the guaranteed gain instead of the lottery one. - in the case of losses - the lottery loss instead of the guaranteed one. The possible well-known "natural and clear explanation" of gains in the Allais paradox by means of risk aversion cannot supply any uniform explanation for both gains and losses. The result of this explanation is gains' risk aversion and losses' risk seeking. Top
Overweighting of low Probabilities
Suppose Mr. Somebody offers you a choice of only one of the following: A guaranteed gain of $1. Or A lottery: The gain of $100 with the probability P(preliminary) = 1% or $0 with the (preliminary) probability 1%. The mathematical expectations of guarantee and lottery outcomes are exactly the same. But the well-determined experimental fact is: in similar experiments the obvious majority of people chose the lottery instead of the guaranteed gain.
Four-Fold-Pattern
The well-determined facts are: For positive (gains) risky prospects, people typically 1) overweight low probabilities but 2) underweight high probabilities. For negative (losses) risky prospects, people typically 3) underweight low probabilities but 4) overweight high probabilities. Top
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4. New Approach
(more)
The idea of the approach
Particular consideration of (hidden) uncertainties (noises, fluctuations, measurements' errors, imprecision, etc.)
Principle of Uncertain Future
(simplified as much as possible)
The principle
The probability of a future event contains uncertainty.
4.1. The first consequence of the principle
Suppose we plan to test the probability value, which is equal to 99%. Suppose the probability uncertainty value is equal to 5%. Then, evidently, the real mean value of probability cannot be as high as 99%. Generally, High probabilities will decrease.
Phigh real < Phigh planned
Analogously, but considering the second consequence of the principle (see below),
Low probabilities can increase.
Plow real possible > Plow planned
4.2. The second consequence of the principle
The total probability of unforeseen future events is more than 0%
Σ Punforeseen real > 0%
Hence,
The present total probability of future events is less than 100%
Σ Pplanned < 100%
or
The present probability system of future events is incomplete. Top
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5. Solution of Problems
(more)
The strongest qualitative test is the 4-Fold-Pattern.
Solution & Explanation
of the 4-Fold-Pattern (simplified as much as possible) The well-determined facts are: For positive (gains) risky prospects, people typically 1) overweight low probabilities but 2) underweight high probabilities. For negative (losses) risky prospects, people typically 3) underweight low probabilities but 4) overweight high probabilities. Denoting the real value of probability, which value is near 100% as Phigh real , the (positive) value of gain as G and the (negative) value of loss as -G , we obtain
Phigh real < Phigh planned
and
G * Phigh real < G * Phigh planned
-G * Phigh real > -G * Phigh planned
2) the underweight of high probabilities gains and 4) the overweight of high probabilities losses. Denoting the real value of probability, which value is near 0% as Plow real possible we obtain
Plow real possible > Plow planned
and
G * Plow real possible > G * Plow planned
-G * Plow real possible < -G * Plow planned
1) the overweight of low probabilities gains and 3) the underweight of low probabilities losses. Thus, the above facts can be explained naturally and uniformly. Top
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