Bayesian utilitarianism and probability homogeneity

This paper investigates, within the axiomatic framework of Jeffrey-Bolker decision theory, two kinds of conditions and the relation between them: (1) The Utilitarian condition that social rankings of prospects be representable by an expected utility function that is a weighted sum of the expected utility functions representing individual rankings; and (2) Homogeneity conditions on the probabilities and preferences of individuals. In particular, we show that identity of individuals’ probabilities is necessary and sufficient for the Utilitarian condition to hold and that the homogeneity of individuals’ probabilities can be derived from a Pareto condition on the relation between individual and social rankings, provided that these rankings are separable in a particular sense.This paper has considerably benefited from comments by John Broome, Isaac Levi and an anonymous referee. Special thanks to Philippe Mongin who provided encouragement, help and careful criticism throughout the development of this paper.     

Analyzing consumers heterogeneity and self-reported tastes: An approach consistent with the consumer’s decision making process

This paper analyses whether self-reported valuation of goods is an adequate proxy for underlying tastes. In this case, different self-reported appraisals, which we can associate with different utility functions, would imply different demand curves. To estimate these kinds of relationships we have used data on reported tastes on new film releases and cinema attendance. We have used a latent class approach in order to imitate the data generating process underlying the demand functions, where consumer’s preferences are determined before consumers purchase. With this procedure we can reject the hypothesis of a unique demand function for all consumers. As expected, moreover, prices have a different influence depending on individuals’ self-reported tastes and specific market policies for each consumer group could therefore be designed.     

Is a good deal always fair? Examining the concepts of transaction value and price fairness

Previous research has shown that if consumers are aware that they are paying more than another customer for a similar transaction, then they may perceive the price to be unfair. A concept closely related to fairness is transaction value, defined as consumers’ perceptions of the psychological satisfaction or pleasure from taking advantage of a price deal. In this research, we conceptualize that although consumers’ perceptions of price fairness and transaction value share many similarities, nevertheless there are also important differences. Using three studies, we empirically examine these differences. We show that although a “bad deal” is typically perceived to be an unfair price, a “good deal” is not necessarily perceived to be the fairest price.     

DIRECT TESTS OF INDIVIDUAL PREFERENCES FOR EFFICIENCY AND EQUITY

Departures from “economic man” behavior in many games in which fairness is a salient characteristic are now well documented in the experimental economics literature. These data have inspired the development of models of social preferences that assume agents have preferences for equity and efficiency as well as their own material payoffs. Empirical failure of the economic man model comes from experiments that provide direct tests of its distinguishing characteristic: indifference to the payoffs of others. This paper reports an experiment that subjects popular social preferences models to the same type of empirical challenge. We report direct tests of the distinguishing characteristics of these models: preference for allocations that have higher efficiency and greater equity. (JEL A12, A13, B49, C70, C91, D63)     

Maternal-biased parental leave

The division of parental leave time between parents is in most countries extremely skewed towards mothers. In this paper we argue that, although it may be rational for a family to let the mother take the main part of the parental leave, the division is too skewed towards the mother even from the family’s own perspective. The reason for this inefficiency is that parents have present-biased preferences, which make them place too much weight on the immediate utility effects of childcare. Time-consistent welfare can therefore be improved by increasing fathers’ share of the family’s parental leave time. In the light of recent regulations in the parental leave system in many countries, we argue that provision of commitment devices is more preferable than regulation when preferences are heterogeneous or uncertain.     

Addiction and intrapersonal externalities in the labour market

This paper attempts to model individual decision-making with respect to alcohol consumption as an intrapersonal game among different temporal selves. A temporal self’s decision regarding alcohol consumption is shown to affect the utility of other selves. This externality gives rise to a potential co-ordination problem. The co-ordination problem may lead to the existence of multiple intrapersonal equilibria which are Pareto rankable. The analysis of alcohol addiction is likely to yield very different conclusions when based upon such a framework as compared to Becker and Murphy’s (1988) rational addiction approach. For example, the reinforcement process characterising addiction emerges not because of the increased marginal benefits associated with alcohol consumption, but rather due to the decreased marginal productivity in the production of substitute commodities. The reasons for the persistence of addictive behaviour and potential for recovery are explored and the effect of depression on addictive consumption is illustrated.     

Fairness judgments in household decision making

The behavioral economic study of fairness was applied to household decision making. A sample of household partners judged the fairness of a number of hypothetical decisions of a household partner, varying in the context of the decision. Decisions made by the partner to make a large personal expenditure or to reduce time spent on household chores were considered by the subjects as more fair if the outcome was framed as a forgone gain then if it was framed as a straight loss. Partners’ decisions to reduce household chores were also considered as more fair in the case of overtime work than when the partner received a salary increase or windfall income. We conclude that asymmetric valuation of losses and forgone gains, and (behavioral) costs as compared with income increase of the partner, influenced the fairness judgments concerning the partner’s behavior.     

Toward a theory of choice: Socially embedded preference construction

We present a boundedly rational model of choice that makes room for individual values and social influences in a process of preference construction. It takes from the subjective expected utility model the notion that people assess their options in terms of expected outcomes, referenced to personal values, but it presumes that individuals assess sharply truncated lists of relevant options, outcomes and values and apply a classification logic rather than a calculative one. Such a model is consistent with the nature of evolved human cognitive abilities. The model treats cognitive heuristics and various forms of social influence as determinants of selection of the truncated lists and it treats moral norms as classification rules activated when certain actions and outcomes become salient. The model has implications for understanding how political rhetoric affects individual and social preferences and how “hot cognitions” fit into human choice and for developing improved methods of collective decision making.     

Axiomatic foundations for fairness-motivated preferences

Much work in social choice theory takes individual preferences as uninvestigated inputs into aggregation functions designed to reflect considerations of fairness. Advances in experimental and behavioural economics show that fairness can also be an important motivation in the preferences of individuals themselves. A proper characterisation of how fairness concerns enter such preferences can enrich the informational basis of many social choice exercises. This paper proposes axiomatic foundations for individual fairness-motivated preferences that cover most of the models developed to rationalise observed behaviour in experiments. These models fall into two classes: Outcome-based models, which see preferences as defined only over distributive outcomes, and context-dependent models, which allow rankings over distributive outcomes to change systematically with non-outcome factors. I accommodate outcome-based and context-sensitive fairness concerns by modelling fairness-motivated preferences as a reference-dependent preference structure. I first present a set of axioms and two theorems that generate commonly used outcome-based models as special cases. I then generalise the axiomatic basis to allow for reference-dependence, and derive a simple functional form in which the weight on each person’s payoff depends on a reference vector of how much each person deserves.     

FAIR ALLOCATION WHEN PLAYERS' PREFERENCES ARE UNKNOWN

Suppose an arbitrator needs to allocate an asset among two players, whose claims on the asset are incompatible. The allocation outcome is said to be fair if the arbitrator awards an outcome that brings the same utility payoff to the two players whenever the two players' claims are symmetric and the allocation set is symmetric. In conjunction with other natural axioms, this fairness requirement implies a unique allocation outcome for any claims problem. We propose a mechanism which can be used by the arbitrator to implement this allocation outcome, even when the players' preferences are unknown to the arbitrator. (JEL C78, D63, J52)     

Testing models of information avoidance with binary choice dictator games

Standard social choice experiments generally force subjects to make decisions about giving money to another person, but the ability to avoid information outside of the lab could lead to less altruistic or fair behavior than such experiments tend to suggest. I expand on the design of Dana, Weber, and Kuang (2007) to better study information avoidance in an experimental setting. Subjects are given the chance to avoid information about a recipient’s payoffs in a dictator game. I vary the probability that a dictator’s payoffs will be aligned with the recipient’s in order to assess the role of beliefs on avoidance and test contradictory models. The within-subjects approach shows that even people who are generous in a stark choice will make self-serving decisions when they can avoid knowing the recipient’s outcome. People avoid information more often when the self-serving choice is unlikely to hurt the recipient, which supports Rabin’s model (1995) of moral rules and moral preferences.     

Walking the talk in multiparty bargaining: An experimental investigation

We study the framing effects of communication on payoffs in multiparty bargaining. Communication has been shown to be more truthful and revealing than predicted in equilibrium. Because talk is preference-revealing, it may effectively frame bargaining around a logic of fairness or competition, moving parties on a path toward or away from equal-division agreements. These endogenous framing effects may outweigh any overall social utility effects due to the mere presence of communication. In two studies, we find that non-binding talk about fairness within a three-party, complete-information game leads toward off-equilibrium, equal division payoffs, while non-binding talk focusing on Competitive Reasoning moves parties away from equal divisions. Our two studies allow us to demonstrate that manipulated pre-game talk and spontaneous within-game dialogue lead to the same results.     

Harsanyi's Social Aggregation Theorem and the Weak Pareto Principle

Harsanyi's Social Aggregation Theorem is concerned with the aggregation of individual preferences defined on the set of lotteries generated from a finite set of basic prospects into a social preference. These preferences are assumed to satisfy the expected utility hypothesis and are represented by von Neumann-Morgenstern utility functions. Harsanyi's Theorem says that if Pareto Indifference is satisfied, then the social utility function must be an affine combination of the individual utility functions. This article considers the implications for Harsanyi's Theorem of replacing Pareto Indifference with Weak Pareto.I am grateful to Charles Blackorby, David Donaldson, Philippe Mongin, and an anonymous referee for their comments. The final version of this article was written while I was the Hinkley Visiting Professor at Johns Hopkins University. Research support was provided by the Social Sciences and Humanities Research Council of Canada.     

Risky choice in interpersonal context: Do people dare because they care?

This paper presents an experimental study investigating the interplay of individuals’ other-regarding preferences and individuals’ risk attitude. Participants (N = 120) had to make choices between a certain and risky payoff only for themselves (individual context) and choices in which the participants were paired with another randomly assigned participant who functioned as a passive recipient (interpersonal context). In the interpersonal context the risky option was beneficial for the other person while the certain option was not. Thus, the interpersonal choice context was an abstract representation of the incentive structure in helping situations, which yield risk only for the helper. Risky options in the interpersonal context yielded different payoff distributions, which allowed us to identify how considerations of fairness affect interpersonal risky choices. To assess other-regarding preferences, a dictator game was played. First we found that participants were generally less risk averse in the interpersonal choices; however, the degree of risk aversion was affected by the distribution of payoffs between decider and recipient. Furthermore, we found that changes of risk aversion in an interpersonal context could be predicted with the proposed splits in the dictator game.     

The Influence of Perceptions of Fairness on Performance Appraisal Reactions

The success of appraisal systems may well depend on ratees’ perceptions of fairness and reactions to important aspects of the appraisal process. My primary purpose is to integrate the literatures on fairness perceptions and appraisal reactions to test specific, heretofore untested, hypotheses. Consistent with predictions of Sweeney and McFarlin’s (Organizational Behavior and Human Decision Processes 55:23–40, 1993) two-factor model, results of structural equation modeling indicated that distributive justice influenced satisfaction with performance ratings and procedural justice influenced satisfaction with the appraisal system. Results indicated mixed support for Bies and Moag’s (Lewicki, Blair, Bazerman (eds) Research on Negotiation in Organization, JAI Press, Greenwich, CT, pp. 43–55, 1986) agent-system model as procedural justice (and distributive justice) had more influence on satisfaction with appraisal feedback than components of interactional justice perceptions. The implications of my results are discussed and suggestions for future research are offered.     

Can incentives for research harm research? A business schools’ tale

This paper develops a simple model of the market for academic publications in business and economics. The supply of papers is presented as the outcome of a game between researchers and schools’ deans under imperfect information about the quality of a given paper. The demand for papers brings into the picture the editorial selection process. After defining the equilibrium of this market, the model allows us to study the consequences of more powerful incentives for publication in major journals. It turns out that too large bonuses, as implemented by business schools in the recent years, might bring about several unpleasant consequences, such as a drop in the quality of major journals, a decline in the number of top-tier publications realized by leading research institutions and a fall in the expected compensation of top researchers.     

Conflicting rationalities, knowledge and values in scarred landscapes

Incorporating public or local preferences in landscape planning is often discussed with respect to the difficulties associated with accurate representation, stimulating interest and overcoming barriers to participation. Incorporating sectoral and professional preferences may also have the same degree of difficulty where conflicts can arise. Planning theory calls for inclusiveness and collaboration, ideally egalitarian, and analysis of the process often uses case study scenarios that may offer examples for practice and further research. Much of the literature takes case studies in urban landscapes as the starting point for discussion and little is known of the collaborative process in rural landscapes, especially damaged landscapes such as those that may occur after extreme resource extraction. In this paper, we use industrially mined, or ‘cutaway’, peatlands as illustrative examples of the remaining ‘scarred’ landscapes. Using narratives of ‘knowledge-holders’ as iterative examples, we explore the perspectives of key actors within scarred landscape after-use planning. It is shown that though there is agreement that community ‘stakes’ are important, there are conflicts relating to the exact level of collaboration or to the extent that it is necessary at all. Traditional sectoral approaches predominate with community level narratives following established pathways. The prevailing rationalities revolve around protectionism and differing opinions of knowledge. Where a policy vacuum exists in relation to after-use of damaged landscapes, the resulting conflict may be an impediment to non-tokenistic stakeholder collaboration.     

A consumer theory with competitive markets for work in marriage

The theory presented here aims at explaining individual consumer behavior inside marriage and prior to marriage. It is a New Home Economics (NHE) model in the sense that it assumes the existence of household production. It is an intra-household bargaining model in the sense that it assumes that husbands and wives typically have different economic interests with respect to marriage, and they try to negotiate arrangements that suit them best. The more resources they have, the more they may obtain results that favor them rather than their spouse. It is a market theory similar to standard labor market theory. This theory throws light on gender differences in demand for commercial goods that have home-produced substitutes. This theory leads to an explanation why women are charged more for dry-cleaning. The theory can also explain differences in demand for different products. Predictions include that of a sex ratio effect on consumption. For example, it is predicted that in countries with more emigration of men than women, women will be expected to make higher contributions to newly weds’ costs of housing. It is also predicted that there will be compensating differentials in marriage. For instance, women married to considerably older men are expected to have relatively more control over the use the couple’s income than women married to men who are close to their own age. In contrast to bargaining theory, the insights presented here apply to both married individuals and to those who anticipate being married in the future.     

OUTCOME UNCERTAINTY,FAN TRAVEL,AND AGGREGATE ATTENDANCE

The uncertainty of outcome hypothesis (UOH) informs economists' understanding of consumer decisions to attend sporting events and team revenue generation. We develop a model of fan behavior based on standard expected utility methods which incorporates fan heterogeneity in terms of decisions to travel to away games and strong preferences for wins. The model reflects aggregate attendance outcomes across local and visiting fans, generates predictions consistent with the UOH, and gives rise to concave league-wide revenue functions. Empirical analysis of game outcomes and attendance at regular season National Basketball association games from 1979 to 2013 supports key predictions of the model. (JEL L83, D12, Z20)