Dominance criteria for welfare comparisons: using equivalent income to describe differences in needs

The article demonstrates that the dominance approach—often used for the measurement of welfare in a population in which there are different household types (see e.g., Atkinson and Bourguignon, Arrow and the foundations of the theory of economic policy, 350–370, 1987)—can be based on explicit value judgments on the households’ living standard. We define living standard by equivalent income (functions) and consider classes of inequality averse social welfare functions: Welfare increases if the inequality of living standard is decreased. In this framework, we suggest three new dominance criteria and obtain characterizations of second degree stochastic dominance and of two criteria proposed by Bourguignon (Journal of Econometrics 42:67–80, 1989).     

Unanimity and Resource Monotonicity

In the context of indivisible public objects problems (e.g., candidate selection or qualification) with “separable” preferences, unanimity rule accepts each object if and only if the object is in everyone’s top set. We establish two axiomatizations of unanimity rule. The main axiom is resource monotonicity, saying that resource increase should affect all agents in the same direction. This axiom is considered in combination with simple Pareto (there is no Pareto improvement by addition or subtraction of a single object), independence of irrelevant alternatives, and either path independence or strategy-proofness.     

Conservative Stable Standards of Behavior and φ-Stable Sets

Within Luo’s (2001, J. Math. Econ. 36, 95–109) framework of a general system, I establish an equivalence theorem for the conservative stable standard of behavior (CSSB for short) developed by J. Greenberg (“The Theory of Social Situation: An Alternative Game-Theoretic Approach,” Cambridge University Press, 1990). It is shown that a standard of behavior for a situation is a CSSB if, and only if, its graph is a φ-stable set for the associated general system.     

Multiple motives of pro-social behavior: evidence from the solidarity game

The article analyses experimental “solidarity games” with two benefactors and one beneficiary. Depending on their motive for giving—e.g., warm glow, altruism, or guilt—the benefactors’ response functions are either constant, decreasing, or increasing. If motives interact, or if envy is a concern, then more complex (unimodal) shapes may emerge. Controlling for random utility perturbations, we determine which and how many motives affect individual decision making. The main findings are that the motives of about 75% of the subjects can be identified fairly sharply, that all of the motives discussed in the literature co-exist in the population, and that for any given individual no more than two motives (out of six motives considered overall) are identified. We conclude that a unifying motive for solidarity cannot be derived even when we allow for individually heterogeneous parameterization: different subjects give for different reasons and all existing social preference theories are partially correct.     

Noise and bias in eliciting preferences

In the context of eliciting preferences for decision making under risk, we analyse the features of four different elicitation methods—pairwise choice, willingness-to-pay, willingness-to-accept, and the Becker-DeGroot-Marschak mechanism—and estimate noise, bias and risk attitudes for two different preference functionals, Expected Utility and Rank-Dependent Expected Utility. It is well-known that methods differ in terms of the bias in the elicitation; it is rather less well-known that methods differ in terms of their noisiness. It has also been reported that risk attitudes are not stable across different elicitation methods. Our results suggest that elicited preferences should only be used in the context in which they were elicited, and the bias in the certainty-equivalent methods should be kept in mind when making predictions based on the elicited preferences. Moreover, conclusions should be moderated to take into account the various methods’ noise, which is generally lowest in the case of pairwise choice.     

Prosocial risk taking and interpersonal regret in children: An individual differences study

The relations between prosocial risk taking (taking a risk to benefit another person; PSRT) and interpersonal regret (regret that one's choices have caused a poor outcome for another person) were examined in 192 children aged 7–9. PSRT was measured by children's choices within a gambling task in which one choice guaranteed participants a good prize whereas the other involved risking this prize to help a peer also win a good prize. Interpersonal regret was assessed within the same task by examining children's change in emotion when they learned they would have won a better prize for a peer had they chosen differently. Performance on this task was also examined in relation to sympathy and resource sharing. Findings indicated that the operationalizations of PSRT and interpersonal regret were meaningful. Children who took a prosocial risk were more generous in a resource sharing task. In some circumstances, children who took a prosocial risk were also more likely to experience interpersonal regret than those who did not take a prosocial risk, indicating that experiencing interpersonal regret may be related to individual differences in prosociality. However, experiencing interpersonal regret did not have a direct effect on subsequent prosocial behavior, when measured by resource sharing. We consider findings in relation to a possible distinction between outcome and process regret and the generalizability of the behavioral consequences of regret.     

Why does myopia decrease the willingness to invest? Is it myopic loss aversion or myopic loss probability aversion?

For loss averse investors, a sequence of risky investments looks less attractive if it is evaluated myopically—an effect called myopic loss aversion (MLA). The consequences of this effect have been confirmed in several experiments and its robustness is largely undisputed. The effect’s causes, however, have not been thoroughly examined with regard to one important aspect. Due to the construction of the lotteries that were used in the experiments, none of the studies is able to distinguish between MLA and an explanation based on (myopic) loss probability aversion (MLPA). This distinction is important, however, in discussion of the practical relevance and the generalizability of the phenomenon. We designed an experiment that is able to disentangle lottery attractiveness and loss probabilities. Our analysis reveals that mere loss probabilities are not as important in this dynamic context as previous findings in other domains suggest. The results favor the MLA over the MLPA explanation.     

Institutions matter! Why the Herder Problem is not a Prisoner’s Dilemma

In the game theory literature, Garrett Hardin’s famous allegory of the “tragedy of the commons” has been modeled as a variant of the Prisoner’s Dilemma, labeled the Herder Problem (or, sometimes, the Commons Dilemma). This brief paper argues that important differences in the institutional structures of the standard Prisoner’s Dilemma and Herder Problem render the two games different in kind. Specifically, institutional impediments to communication and cooperation that ensure a dominant strategy of defection in the classic Prisoner’s Dilemma are absent in the Herder Problem. Their absence does not ensure that players will achieve a welfare-enhancing, cooperative solution to the Herders Problem, but does create far more opportunity for players to alter the expected payoffs through cooperative arrangements. In a properly modeled Herder Problem—along the lines of an assurance game—defection would not always be the dominant strategy. Consequently, the Herder Problem is not in the nature of a Prisoner’s Dilemma.     

Accounting for Ethical Difficulties in Social Welfare Work: Issues, Problems and Dilemmas

This paper is a preliminary exploration of social welfare practitioners’accounts of ‘ethically difficult situations’. Itdescribes variations in the ethical vocabulary and form of theseaccounts. Analysis of practitioners’ own accounts (asopposed to ‘textbook’ cases) draws attention tothe ways they construct events, actions and qualities of characteras ethically significant and highlights the qualitative distinctivenessof ethical dilemmas, where seemingly irresolvable choices leavea residue of moral loss, regret or guilt.     

Liquid Social Work: Welfare Interventions as Mobile Practices

This paper re-examines the nature of social work from the perspectiveof movement and ‘mobilities’. It shows that socialwork is at all times ‘on the move’, yet theory andanalyses of policy and practice largely depict it as static,solid and sedentarist. The paper draws on the ‘new mobilitiesparadigm’ (Sheller and Urry, 2006), through which a concernwith flows and movements of people, objects, information, practices,speed and rhythm, with complexity, fluid images and liquid metaphors,is moving to the centre of social theory. An understanding ofthe ‘liquid’, mobile character of social work meansproducing accounts which are much closer to what its practicesare, how and where they are performed and experienced by serviceusers and professionals, and the opportunities and risks inherentto them. Three key domains of practice—the home visit,the car journey and the office/organization—are examinedin terms of the movements that go on in them. Viewed throughsystemic and complexity theories, it is shown that social workinterventions in late-modernity are best understood in termsof a flow of mobile practices between public and private worlds,organizations and the home, at the heart of which is the sensualbody of the practitioner on the move.     

Aggregation of correlated votes and Condorcet’s Jury Theorem

This paper proves two theorems for homogeneous juries that arise from different solutions to the problem of aggregation of dichotomous choice. In the first theorem, negative correlation increases the competence of the jury, while positive correlation has the opposite effect. An enlargement of the jury with positive correlation can be detrimental up to a certain size, beyond which it becomes beneficial. The second theorem finds a family of distributions for which correlation has no effect on a jury’s competence. The approach allows us to compute the bounds on a jury’s competence as the maximum and minimum probability of it being correct for a given individual competence and dependence structure.     

Statistical decisions under ambiguity

This article provides unified axiomatic foundations for the most common optimality criteria in statistical decision theory. It considers a decision maker who faces a number of possible models of the world (possibly corresponding to true parameter values). Every model generates objective probabilities, and von Neumann–Morgenstern expected utility applies where these obtain, but no probabilities of models are given. This is the classic problem captured by Wald’s (Statistical decision functions, 1950) device of risk functions. In an Anscombe–Aumann environment, I characterize Bayesianism (as a backdrop), the statistical minimax principle, the Hurwicz criterion, minimax regret, and the “Pareto” preference ordering that rationalizes admissibility. Two interesting findings are that c-independence is not crucial in characterizing the minimax principle and that the axiom which picks minimax regret over maximin utility is von Neumann–Morgenstern independence.     

Beneficial safety decreases

We construct a model of rational choice under risk with biased risk judgement. On its basis, we argue that sometimes, a regulator aiming at maximising social welfare should affect the environment in such a way that it becomes ‘less safe’ in common perception. More specifically, we introduce a bias into each agent’s choice of optimal risk levels: consequently, in certain environments, agents choose a behaviour that realises higher risks than intended. Individuals incur a welfare loss through this bias. We show that by deteriorating the environment, the regulator can motivate individuals to choose behaviour that is less biased, and hence realises risk levels closer to what individuals intended. We formally investigate the conditions under which such a Beneficial Safety Decrease—i.e. a deteriorating intervention that has a positive welfare effect—exists. Finally, we discuss three applications of our model.     

The Single Assessment Process in Primary Care: Older People's Accounts of the Process

Recent government policies have been active in addressing socialinclusion and active participation of older people in many aspectsof societal life. Independence and well-being animate thesedevelopments and are evident in the emphasis on person-centredservices within the single assessment process for older people(Department of Health, 2002b). Drawing on a feasibility study of the Single Assessment Processas a ‘case-finding’ approach, this paper presentsfindings drawn from older people’s accounts of this experience.These accounts indicate the potential of the process for identifying‘low-level’ need, whilst raising issues of accessto formal services and resource constraint; also they underlinethe importance of understanding how older people seek ways ofmanaging their own health and well-being, whilst continuingto contribute to the social cohesion of society by providingsupport to their peers and to younger generations. Interdependence, it is suggested, rather than dependence shouldunderlie any approach to assessing older people’s needs,if we are to appreciate and build upon the complexity of olderpeople’s strategies for actively managing their lives.     

Portfolio Inertia and Epsilon-Contaminations

This article analyzes investors’ portfolio selection problems in a two-period dynamic model of Knightian uncertainty. We account for the existence of portfolio inertia in this two-period framework. Furthermore, by incorporating investors’ updating behavior, we analyze how observing new information in the first period will affect investors’ behavior. By this analysis, we show that observing new information in the first period will expand portfolio inertia in the second period compared with the case in which observing new information has not been gained in the first period if the degree of Knightian uncertainty is sufficiently large.     

Probability weighting and the ‘level’ and ‘spacing’ of outcomes: An experimental study over losses

The main goal of the experimental study described in this paper is to investigate the sensitivity of probability weighting to the payoff structure of the gambling situation—namely the level of consequences at stake and the spacing between them—in the loss domain. For that purpose, three kinds of gambles are introduced: two kinds of homogeneous gambles (involving either small or large losses), and heterogeneous gambles involving both large and small losses. The findings suggest that at least for moderate/high probability of loss do both ‘level’ and ‘spacing’ effects reach significance, with the impact of ‘spacing’ being both opposite to and stronger than the impact of ‘level’. As compared to small-loss gambles, large-loss gambles appear to enhance probabilistic optimism, while heterogeneous gambles tend to increase pessimism.

Simple methods for evaluating and comparing binary experiments

We consider a confidence parametrization of binary information sources in terms of appropriate likelihood ratios. This parametrization is used for Bayesian belief updates and for the equivalent comparison of binary experiments. In contrast to the standard parametrization of a binary information source in terms of its specificity and its sensitivity, one of the two confidence parameters is sufficient for a Bayesian belief update conditional on a signal realization. We introduce a confidence-augmented receiver operating characteristic for comparisons of binary experiments for a class of “balanced” decision problems, relative to which the confidence order offers a higher resolution than Blackwell’s informativeness order.

Where observation is concerned, Chance favors only the prepared mind. —Louis Pasteur (1822–1895).

     

The puzzle of cooperation in a game of chicken: an experimental study

The objective of this article is to investigate the impact of agent heterogeneity (as regards their attitude towards cooperation) and payoff structure on cooperative behaviour, using an experimental setting with incomplete information. A game of chicken is played considering two types of agents: ‘unconditional cooperators’, who always cooperate, and ‘strategic cooperators’, who do not cooperate unless it is in their interest to do so. Overall, our data show a much higher propensity to cooperate than predicted by theory. They also suggest that agent heterogeneity matters: the higher the proportion of ‘strategic cooperators’ in the population, the higher their probability to cooperate. Finally, our data confirm that higher rewards to cooperation (embedded in the payoff structure) tend to lower defection. Taken together, our results suggest that the subjects might be non-expected utility maximizers, dealing with both outcomes and probabilities in a non-linear manner.     

Two-sided intergenerational moral hazard,long-term care insurance,and nursing home use

Two-sided intergenerational moral hazard occurs (i) if the parent’s decision to purchase long-term care (LTC) coverage undermines the child’s incentive to exert effort because the insurance protects the bequest from the cost of nursing home care, and (ii) when the parent purchases less LTC coverage, relying on child’s effort to keep him out of the nursing home. However, a “net” moral hazard effect obtains only if the two players’ responses to exogenous shocks fail to neutralize each other, entailing a negative relationship between child’s effort and parental LTC coverage. We focus on outcomes out of equilibrium, interpreting them as a break in the relationship resulting in no informal care provided and hence high probability nursing home admission. Changes in the parent’s initial wealth, LTC subsidy received, and child’s expected inheritance are shown to induce “net” moral hazard, in contradistinction to changes in child’s opportunity cost and share in the bequest.