Learning in the Allais paradox

Whereas both the Allais paradox, the first empirical challenge of the classical rationality assumptions, and learning have been the focus of many experimental investigations, no experimental study exists today into learning in the pure context of the Allais paradox. This paper presents such a study. We find that choices converge to expected utility maximization if subjects are given the opportunity to learn by both thought and experience, but less so when they learn by thought only. To the extent that genuine preferences should be measured with proper learning and incentives, our study gives the first pure demonstration that irrationalities such as in the Allais paradox are less pronounced than often thought. Paul Anand and Stefan Trautmann made helpful comments.     

Consequentialist foundations for expected utility

Behaviour norms are considered for decision trees which allow both objective probabilities and uncertain states of the world with unknown probabilities. Terminal nodes have consequences in a given domain. Behaviour is required to be consistent in subtrees. Consequentialist behaviour, by definition, reveals a consequence choice function independent of the structure of the decision tree. It implies that behaviour reveals a revealed preference ordering satisfying both the independence axiom and a novel form of sure-thing principle. Continuous consequentialist behaviour must be expected utility maximizing. Other plausible assumptions then imply additive utilities, subjective probabilities, and Bayes' rule.     

现代文学的审美超越性与现实功利的羁绊

文学的超越性是以它的现实性为基础的,中国现代文学所面临的问题不在于它是否反映了现实,而在于对现实的功利性态度局限了它对现实的深入表现.一方面,现实功利性文化的制约把现代文学的关注点牢牢地吸附在社会政治实践上,使文学难以在探索范围和深度上有大的突破;另一方面,中国传统的以"正德"实践为目标的超越模式既使作家强调事功而忽视对"真"的探索,也使作家的主体意识受到抑制.这正是现代文学的超越性困境之所在.     

Whom should we believe? Aggregation of heterogeneous beliefs

We examine the collective risk attitude of a group with heterogeneous beliefs. We prove that the wealth-dependent probability distribution used by the representative agent is biased in favor of the beliefs of the more risk tolerant consumers. Moreover, increasing disagreement on the state probability raises the state probability of the representative agent. It implies that when most disagreements are concentrated in the tails of the distribution, the perceived collective risk is magnified. This can help to solve the equity premium puzzle. We show that the trade volume and the equity premium are positively correlated.

Disappointment without prior expectation: a unifying perspective on decision under risk

The central idea of Disappointment theory is that an individual forms an expectation about a risky alternative, and may experience disappointment if the outcome eventually obtained falls short of the expectation. We abandon the hypothesis of a well-defined prior expectation: disappointment feelings may arise from comparing the outcome received with anyof the gamble’s outcomes that the individual failed to get. This leads to a new, general form of Disappointment model. It encompasses Rank Dependent Utility with an explicit one-parameter probability transformation, and Risk-Value models with a generic risk measure including Variance, providing a unifying behavioral foundation for these models. JEL Classification D80 . D81     

The Becker-DeGroot-Marschak mechanism and generalized utility theories: Theoretical predictions and empirical observations

Karni and Safra [8] prove that the Becker-DeGroot-Marschak mechanism reveals a decision maker's true certainty equivalent of a lottery if and only if he satisfies the independence axiom. Segal [17] claims that this mechanism may reveal a violation of the reduction of compound lotteries axiom. This paper empirically tests these two interpretations. Our results show that the second interpretation fits better with the collected data. Moreover, we show by means of some nonexpected utility examples that these results are consistent with a wide range of functionals.     

Paying to improve your chances: Gambling or insurance?

Will a more risk-averse individual spend more or less to improve probabilities, say on marketing efforts that enhance the chance of a sale? For any two payoffs and starting probabilities, the answer is unfortunately indeterminate. However, interpreting gambling as increasing small chances of good outcomes and insurance as reducing small chances of bad outcomes, the more risk-averse individual will pay less (more) to gamble (insure). We find a critical switching probability that depends on the individuals and outcomes involved. If the good outcome is less (more) likely than this critical value, the expenditures represent gambling (insurance).     

An experimental evaluation of the descriptive validity of lottery-dependent utility theory

This article compares the performance of the expected utility (EU) and lottery-dependent expected utility (LDEU) models in predicting the actual choices of experimental subjects among risky options. In the process, we present two approaches for calibrating the LDEU model for an individual decision maker. The results indicate that while LDEU exhibits a higher potential for correctly predicting choice, the version of the model calibrated by indifference judgments does not outperform EU. We suggest a functional form for the parametric functions that defines the LDEU model, and discuss ways in which this function can be incorporated into choice-based assessment approaches to improve predictions.This research was supported in part by the Business Associates Fund at the Fuqua School of Business, Duke University.