A tractable method to measure utility and loss aversion in prospect theory


Journal of Risk & Uncertainty

juin 2008, vol. 36, n°3, pp.245-266

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

This paper provides an efficient method to measure utility under prospect theory. Our method minimizes both the number of elicitations required to measure utility and the cognitive burden for subjects, being based on the elicitation of certainty equivalents for two-outcome prospects. We applied our method in an experiment and were able to replicate the main findings on prospect theory, suggesting that our method measures what it is intended to. Our data confirmed empirically that risk seeking and concave utility can coincide under prospect theory. Utility did not depend on the probability used in the elicitation, which offers support for the validity of prospect theory. Loss aversionProspect theoryUtility measurement

Axiomatization of an exponential similarity function

A. Billot, I. GILBOA, D. Schmeidler

Mathematical Social Sciences

mars 2008, vol. 55, n°2, pp.107-115

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

An individual is asked to assess a real-valued variable y based on certain characteristics x = (x1,', xm), and on a database consisting of n observations of (x1,', xm, y). A possible approach to combine past observations of x and y with the current values of x to generate an assessment of y is similarity-weighted averaging. It suggests that the predicted value of y, yn+1s, be the weighted average of all previously observed values yi, where the weight of yi is the similarity between the vector xn+11,', xn+1m, associated with yn+1, and the previously observed vector, xi1,', xim. This paper axiomatizes, in terms of the prediction yn+1, a similarity function that is a (decreasing) exponential in a norm of the difference between the two vectors compared. Keywords: Similarity function; Axiom; Exponential decay

Component-based Structural Equation Modelling


Total Quality Management & Business Excellence

2008, vol. 19, n°7-8, pp.871-886

Départements : Economie et Sciences de la décision

Mots clés : Component-based SEM, Covariance-based SEM, GSCA, Path analysis, PLS path modelling, Structural Equation Modelling (SEM), Unweighted Least Squares (ULS)

Two complementary schools have come to the fore in the field of Structural Equation Modelling (SEM): covariance-based SEM and component-based SEM. The first approach has been developed around Karl Jöreskog and the second one around Herman Wold under the name ‘PLS’ (Partial Least Squares). Hwang and Takane have proposed a new component-based SEM method named Generalised Structured Component Analysis. Covariance-based SEM is usually used with an objective of model validation and needs a large sample. Component-based SEM is mainly used for score computation and can be carried out on very small samples. In this research, we will explore the use of ULS-SEM, PLS, GSCA, path analysis on block principal components and path analysis on block scales on customer satisfaction data. Our conclusion is that score computation and bootstrap validation are very insensitive to the choice of the method when the blocks are homogenous

Discounted and finitely repeated minority games with public signals

M. SCARSINI, S. Scarlatti, J. Renault

Mathematical Social Sciences

juillet 2008, vol. 56, n°1, pp.44-74

Départements : Economie et Sciences de la décision

Mots clés : Repeated games, Imperfect monitoring, Public equilibria, Private equilibria, Pareto-efficiency, Discount factor

We consider a repeated game where at each stage players simultaneously choose one of the two rooms. The players who choose the less crowded room are rewarded with one euro. The players in the same room do not recognize each other, and between the stages only the current majority room is publicly announced, hence the game has imperfect public monitoring. An undiscounted version of this game was considered by Renault et al. [Renault, J., Scarlatti, S., Scarsini, M., 2005. A folk theorem for minority games. Games Econom. Behav. 53 (2), 208–230], who proved a folk theorem. Here we consider a discounted version and a finitely repeated version of the game, and we strengthen our previous result by showing that the set of equilibrium payoffs Hausdorff-converges to the feasible set as either the discount factor goes to one or the number of repetition goes to infinity. We show that the set of public equilibria for this game is strictly smaller than the set of private equilibria

Editorial Insurance and Adaptation to Climate Change

P. PICARD, S. Chemarin

Geneva Papers for Risk and Insurance. Issues and Practice

janvier 2008, vol. 33, n°1, pp.66-70

Départements : Economie et Sciences de la décision

The article discusses various reports published within the issue, including one by Arthur Charpentier examining the potential impacts that climate change will have on insurance and reinsurance markets, and an article by Kim Clemo examining how insurance companies can help small business adapt to climatic changes.

Entropy bounds on Bayesian Learning

O. Gossner, T. TOMALA

Journal of Mathematical Economics

janvier 2008, vol. 44, n°1, pp.24-32

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Mots clés : Bayesian learning; Repeated decision problem; Value of information; Entropy

An observer of a process View the MathML source(xt) believes the process is governed by Q whereas the true law is P . We bound the expected average distance between P(xt|x1,…,xt-1)P(xt|x1,…,xt-1) and Q(xt|x1,…,xt-1)Q(xt|x1,…,xt-1) for t=1,…,nt=1,…,n by a function of the relative entropy between the marginals of P and Q on the n first realizations. We apply this bound to the cost of learning in sequential decision problems and to the merging of Q to P

Factoring out the impossibility of logical aggregation


Journal of Economic Theory

juillet 2008, vol. 141, n°1, pp.100-113

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

According to a theorem recently proved in the theory of logical aggregation, any nonconstant social judgment function that satisfies independence of irrelevant alternatives (IIA) is dictatorial. We show that the strong and not very plausible IIA condition can be replaced with a minimal independence assumption plus a Pareto-like condition. This new version of the impossibility theorem likens it to Arrow's and arguably enhances its paradoxical value. Keywords: Discursive dilemma; Doctrinal paradox; Impossibility theorems

Le libéralisme, deus ex machina de l'économie du bien-être?


Revue Economique

2008, n°59, pp.359-366

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Limited Asset Market Participation, Monetary Policy and (Inverted) Aggregate Demand Logic


Journal of Economic Theory

mai 2008, vol. 140, n°1, pp.162-196

Départements : Economie et Sciences de la décision

This paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis. Aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation. While 'moderate' participation rates strengthen the role of monetary policy, low enough participation causes an inversion of results dictated by conventional wisdom. The slope of the 'IS' curve changes sign, the 'Taylor principle' is inverted, optimal welfare-maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed. However, a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation. Our results may justify Fed's behavior during the 'Great Inflation' period. Keywords: Limited asset markets participation; Dynamic general

Loss Aversion: Origin, Components and Marketing Implications


Recherche et Applications en Marketing

2008, vol. 23, n°2, pp.67-83

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)