Dynamic consistency in extensive form decision problems

In a stimulating paper, Piccione and Rubinstein (1997) argued how a decision maker could undertake dynamically inconsistent choices when, in an extensive form decision problem, she has a particular type of imperfect recall named absentmindedness. Such memory limitation obtains whenever information sets include decision histories along the same decision path. Starting from work focusing on the absentminded driver example, and independently developed by Segal (2000) and Dimitri (1999), the main theorem of this article provides a general result of dynamically consistent choices, valid for a large class of finite extensive form decision problems without nature.      

Dynamically Consistent Preferences with Quadratic Beliefs

This article characterizes a family of preference relations over uncertain prospects that (a) are dynamically consistent in the Machina sense and, moreover, for which the updated preferences are also members of this family and (b) can simultaneously accommodate Ellsberg- and Allais-type paradoxes.Replacing the "mixture independence" axiom by "mixture symmetry" proposed by Chew, Epstein, and Segal (1991) for decision making under objective risk, and requiring that for some partition of the state space the agent perceives ambiguity and so prefers a randomization over outcomes across that partition (proper uncertainty aversion), preferences can be represented by a (proper) quadratic functional. This representation may be further refined to allow a separation between the quantification of beliefs and risk preferences that is closed under dynamically consistent updating.     

A note on the information content of a consistent pairwise comparison judgment matrix of an AHP decision maker

A decision maker using the Analytic Hierarchy Process (AHP) could be consistent, and still provide no information in the resulting vector of priorities. An extreme example would be a pairwise comparison judgment matrix filled with 1s which is totally consistent under the various definitions of consistency, but has provided no information about the prioritization of alternatives resulting from the decision maker's judgments. In this paper, the quality of a consistent decision maker's judgments using the Analytic Hierarchy Process is placed in the context of the entropy of the resulting vector of priorities. Indeed, it is the purpose of this paper to provide a formal definition of this notion ofentropy of a priority vector, and to provide a framework for a quantitative measurement of the information content of consistent pairwise comparison judgment matrices of a decision maker who is using the Analytic Hierarchy Process. We will prove that the entropy of the vector of priorities for consistent matrices follows a normal distribution and discuss some general considerations of this result.     

Asymmetric Choquet random walks and ambiguity aversion or seeking

Asymmetric Choquet random walks are defined, in the form of dynamically consistent random walks allowing for asymmetric conditional capacities. By revisiting Kast and Lapied (Dynamically consistent Choquet random walk and real investments. Document de Travail n. 2010-33, GREQAM, HAL id: halhs-00533826, 2010b) and Kast et al. (Econ Model, 38:495–503, 2014) we show that some findings regarding the effects of ambiguity aversion are preserved in the more general framework, which is of interest in several applications to policy making, risk management, corporate decisions, real option valuation of investment/ disinvestment projects, etc. The effect of ambiguity on the higher moments is investigated, as well, as they have an interpretation in terms of the psychological attitude of a decision-maker towards ambiguity. Finally, some financial applications are provided as an illustration.     

On the equivalence between descending bid auctions and first price sealed bid auctions

Bidding the same price in descending bid auctions and in first price sealed bid auctions is equivalent to expected utility maximizing behavior, and this is equivalent to dynamically consistent bidding. The claim that, in strategic form, descending bid and first price sealed bid auctions are the same game is thus shown to be false, since the mapping from strategies to payoffs is not the same for the two auction forms.     

Valuing Mortality-Risk Reduction: Using Visual Aids to Improve the Validity of Contingent Valuation

We investigate the validity of contingent valuation (CV) estimates of the value per statistical life (VSL). We test for sensitivity of estimated willingness to pay (WTP) to the magnitude of mortality-risk reduction and for the theoretically predicted proportionality of WTP to risk reduction using alternative visual aids to communicate risk. We find that WTP is sensitive to the magnitude of risk reduction for independent subsamples of respondents presented with each of three alternative visual aids, but not for the subsample presented with no visual aid. Estimated WTP is consistent with proportionality to risk reduction for the subsamples presented with a logarithmic scale or an array of 25,000 dots, but not for the subsample receiving a linear scale. These results suggest that CV can provide valid estimates of WTP for mortality-risk reduction if appropriate methods are used to communicate the risk change to respondents.     

Testing Prospect Theories Using Probability Tradeoff Consistency

The two versions of prospect theory, original prospect theory (OPT; Kahneman and Tversky, 1979) and cumulative prospect theory (CPT; Tversky and Kahneman, 1992), use different composition rules to combine the value function and the probability weighting function and hence value gambles with two or more non-zero outcomes differently. Previous tests of OPT and CPT have yielded mixed results, with some investigations supporting OPT and some supporting CPT. We extend the probability tradeoff consistency axiom used in Abdellaoui (2002) for CPT to OPT, and develop a critical test of the two prospect theories based on their respective probability tradeoff consistency conditions. An empirical investigation of the critical test shows that choices are consistent with OPT, but not CPT, for gambles that do not involve a certainty effect, and consistent with both CPT and OPT for gambles that do involve a certainty effect, provided that an editing operation is invoked for OPT.     

A No-Trade Theorem under Knightian Uncertainty with General Preferences

This paper derives a no-trade theorem under Knightian uncertainty, which generalizes the theorem of Milgrom and Stokey (1982, Journal of Economic Theory 26, 17) by allowing general preference relations. It is shown that the no-trade theorem holds true as long as agents' preferences are dynamically consistent in the sense of Machina and Schmeidler (1991, Econometrica 60, 745), and satisfies the so-called piece-wise monotonicity axiom. A preference satisfying the piece-wise monotonicity axiom does not necessarily imply the additive utility representation, nor is necessarily based on beliefs. This revised version was published online in June 2006 with corrections to the Cover Date.     

Non-expected utility risk premiums: The cases of probability ambiguity and outcome uncertainty

This paper discusses two problems. (a) What happens to the conditional risk premium that a decision maker is willing to pay out of the middle prize in a lottery to avoid uncertainty concerning the middle prize outcome, when the probabilities of other prizes change? (b) What happens to the increase that a decision maker is willing to accept in the probability of an unpleasant outcome in order to avoid ambiguity concerning this probability, when this probability increases? We discuss both problems by using anticipated utility theory, and show that the same conditions on this functional predict behavioral patterns that are consistent both with a natural extension of the concept of diminishing risk aversion and with some experimental findings.     

Correlated equilibrium in a nutshell

We analyze the concept of correlated equilibrium in the framework of two-player two-strategy games. This simple framework makes it possible to clearly demonstrate the characteristic features of this concept. We develop an intuitive and easily memorizable test for equilibrium conditions and provide a complete classification of symmetric correlated equilibria in symmetric games.     

Removing gender barriers: Promoting inclusion for trans and non‐binary carers in fostering and adoption

This paper offers a conceptually informed analysis of fostering and adoption social work and argues for more consistent inclusion of trans and non‐binary people. The conceptual framework through which we explore current policy and practice is set out to provide clarity about the ways in which we employ the concepts of trans, gender diversity, and cisgenderism (a prejudicial ideology). We employ the notion of cisgenderism as a critical lens through which to overview fostering and adoption social work within the context of trans inclusion. Focus is turned to the existing literature relevant to trans parenting, trans‐headed families, and the field of fostering and adopting. We highlight significant knowledge gaps in this regard. We then argue that if fostering and adoption social work is to embody inclusive practice with trans people, a new culture must be embedded to promote collaborative working, enhance knowledge, and improve service provision. The paper concludes by asserting that such an approach must be underpinned by an understanding, acceptance, and appreciation of people who identify as trans and/or as non‐binary.     

The Peltzman hypothesis revisited: An isolated evaluation of offsetting driver behavior

Nearly all of the previous investigations of driver behavior under varying safety conditions have only been able to evaluate the issue of offsetting driver behavior indirectly. Some studies note that engineering estimates of the aggregate improvements of automobile safety enhancements are substantively larger than economic estimates of the same effects. Others have found that non-occupants such as motorcyclists and pedestrians are under greater risk of incurring accidents when automobiles are made safer. Although these observations are consistent with the hypothesis that drivers respond to safety enhancements by driving less safely (having been instilled with a sense of greater protection provided by the safety improvements), they do not provide a direct evaluation of the relationship between driving environment and driver behavior. Thus, factors other than offsetting behavior may be generating these observed results. A few studies have tested the offsetting behavior hypothesis more directly, but only under highly specific safety conditions and narrow measures of driver behavior. This article undertakes an isolated analysis of driver behavior under varying safety conditions, with data which allows for more general changes to safety conditions and broader measures of driver behavior. Estimates obtained from the evaluation of individual accident reports lend support to the offsetting behavior hypothesis and imply that both aggressive behavior and nonaggressive (inattentive) driving behavior are likely to increase as the driving environment becomes safer.     

Overlapping coalitions,bargaining and networks

We model the formation of coalitions that are not necessarily disjoint. We propose a new bargaining game that yields an overlapping coalition structure as an outcome. Equilibrium does not always exist in pure strategies for such a game, but we show that it always exists with a mild degree of mixed strategies. We derive conditions for a complete duality between networks and overlapping coalitions, and we provide a new rationale for the sequential formation of networks.     

The influence of fear in decisions: Experimental evidence

This article studies decisions made under conditions of fear, when a catastrophic outcome is introduced in a lottery. It reports on experimental results and seeks to compare the predictions of the expected utility (EU) framework with those of a new axiomatic treatment of choice under uncertainty that takes explicit account of emotions such as fear (Chichilnisky 1996, 2000, 2002, 2009). Results provide evidence that fear influences the cognitive process of decision-making by leading some subjects to focus excessively on catastrophic events. Such heterogeneity in subjects’ behavior, while not consistent with EU-based functions, is fully consistent with the new type of utility function implied by the new axioms.     

Hidden information acquisition and static choice

This note explores the consequence of hidden information acquisition for static choice theory. We show that any choice function in the observable problem can be consistent with some well-behaved choice function in a metaproblem with unobservable costly information acquisition. This illustrates how choices may not satisfy consistency conditions because a decision maker's decision process (in this case, information acquisition) depends on her feasible set. It also illustrates the importance of modeling the source of violations of consistency conditions, rather than simply weakening axioms on preferences.     

A representation of preferences by the Choquet integral with respect to a 2-additive capacity

In the context of Multiple criteria decision analysis, we present the necessary and sufficient conditions allowing to represent an ordinal preferential information provided by the decision maker by a Choquet integral w.r.t a 2-additive capacity. We provide also a characterization of this type of preferential information by a belief function which can be viewed as a capacity. These characterizations are based on three axioms, namely strict cycle-free preferences and some monotonicity conditions called MOPI and 2-MOPI.     

Bhaskar and Bunge on Social Emergence

This article discusses the theories of social emergence developed by Roy Bhaskar and Mario Bunge. Bhaskar's concept of emergent causal power is shown to be ambiguous, and some of the difficulties of his depth-relational concept of social emergence are examined. It is argued that Bunge's systemic concept of emergent property is not only different, but also clearer and more consistent than Bhaskar's concept of emergent causal power. Despite its clarity and consistency, Bunge's definition of the concept of emergent property is shown to be too broad and analytically imprecise for the purposes of an emergentist social ontology. It is argued that Bunge's systemic account of social emergence can be developed further by using William Wimsatt's gradual approach to emergent phenomena and his four conditions of aggregativity of a systemic property. It is shown that these conditions provide useful conceptual tools for clarifying and investigating different kinds of mechanisms of social emergence and developing stronger varieties of the concept of emergent social property than that indicated in Bunge's definition of this concept.     

On the Inefficiency of Bang-Bang and Stop-Loss Portfolio Strategies

We show in this article that bang-bang portfolio strategies where the investor is alternatively 100% in equity and 100% in cash are dynamically inefficient. Our proof of this result is based on a simple second-order stochastic dominance (SSD) argument. It implies that this is true for any decision criterion that satisfies SSD, not necessarily expected utility. We also examine the stop-loss strategy in which the investor is 100 percent in equity as long as the value of the portfolio exceeds a lower limit where the investor switches to 100 percent in cash. Again, we show that this strategy is inefficient under second-order risk aversion. However, a slight modification of it–in which all wealth exceeding a minimum reserve is invested in equity–is shown to be an efficient dynamic portfolio strategy. This strategy is optimal for investors with a nondifferentiable utility function.     

An essay on the agricultural production organization in former communist countries

This paper reviews and interprets existing information and transaction costs theories of firm organization and entrepreneur’s role in order to provide a consistent explanation of the farm-sector dynamics in former communist countries. Important determinants of farm restructuring are economic factors, such as relative productivity of existing human and physical capital in different organizations, risk, terms of trade, transition specific distortions, and factor intensity of agricultural production. To a large extent, however, the phenomenon of various new enterprises being established represents not just general economic and policy conditions but also a diverse population of economic agents.     

Applications of Reward Structures in Social Group Work

Group reward structures have been found to provide social workers with effective procedures for sustaining changes made by group members. This paper provides a review of the literature on reward structures in an effort to determine which work best with clients in sustaining changes they make in a group context. The pros and cons of individual and group reward structures are discussed and six principles to increase success are identified: (1) appropriate behavior must be reinforced; (2) reinforcers must be available to all members, but not too easily available; (3) reinforcers should be delivered close in time to the occurrence of Lhe behavior they reinforce; (4) reinforcers must be consistent in their application; (5) reinforcers must be appropriate to the chosen behavioral change; and (6) there must be a pattern of consistent reinforcement by significant others in a person's environment.