Characterizations of Smooth Ambiguity Based on Continuous and Discrete Data


Mathematics of Operations Research

février 2017, vol. 42, n°1, pp.167 - 178

Départements : Economie et Sciences de la décision

Mots clés : smooth ambiguity; variational preferences; revealed preference; completely monotone functions; Afriat inequalities; moment problem

In the Anscombe-Aumann setup, we provide conditions for a collection of observations to be consistent with a well-known class of smooth ambiguity preferences (Klibanoff P, Marinacci M, Mukerji S (2005) A smooth model of decision making under ambiguity. Econometrica 73(6):1849–1892.). Each observation is assumed to take the form of an equivalence between an uncertain act and a certain outcome. We provide three results that describe these conditions for data sets of different cardinality. Our findings uncover surprising links between the smooth ambiguity model and classic mathematical results in complex and functional analysis.

A theorem on aggregating classifications


Mathematical Social Sciences

janvier 2016, vol. 79, pp.6-10

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

Mots clés : Aggregation of classifications, Group identification problem, Task assignment problem, Nonbinary evaluations

Suppose that a group of individuals must classify objects into three or more categories, and does so by aggregating the individual classifications. We show that if the classifications, both individual and collective, are required to put at least one object in each category, then no aggregation rule can satisfy a unanimity and an independence condition without being dictatorial. This impossibility theorem extends a result that Kasher and Rubinstein (1997) proved for two categories and complements another that Dokow and Holzman (2010) obtained for three or more categories under the condition that classifications put at most one object in each category. The paper discusses an interpretation of its result both in terms of Kasher and Rubinstein’s group identification problem and in terms of Dokow and Holzman’s task assignment problem.

Choice-based cardinal utility: a tribute to Patrick Suppes


Journal of Economic Methodology

2016, vol. 23, n°3, pp.268-288

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

Mots clés : ordinal utility, cardinal utility, preference differences, representation theorems, Suppes, ordinalism, cardinalism

We reexamine some of the classic problems connected with the use of cardinal utility functions in decision theory, and discuss Patrick Suppes’ contributions to this field in light of a reinterpretation we propose for these problems. We analytically decompose the doctrine of ordinalism, which only accepts ordinal utility functions, and distinguish between several doctrines of cardinalism, depending on what components of ordinalism they specifically reject. We identify Suppes’ doctrine with the major deviation from ordinalism that conceives of utility functions as representing preference differences, while being nonetheless empirically related to choices. We highlight the originality, promises and limits of this choice-based cardinalism.

Comparing attitudes toward time and toward money in experience-based decisions


Theory and Decision

janvier 2016, vol. 80, n°1, pp.71-100

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

Mots clés : Experience-based decisions, Time, Real incentives, Mixed modeling, Errors, Probability weighting

This paper reports an experimental comparison of attitudes toward time and toward money in experience-based decisions. Preferences were elicited under rank-dependent utility for prospects with two or three consequences expressed either in time or in monetary units. Probabilities were unknown but learned through sampling. More specifically, time and money were compared under two conditions. In a first experiment, both consequences and probabilities of prospects were unknown and learned through sequential sampling. In a second experiment, the possible consequences were revealed after the sampling. A real incentive system was implemented for both time and money. The heterogeneity of preferences was assessed for time and for money through individual and mixed modeling estimations. We observe that the nature of consequences (time or money) modifies probability weighting in terms of elevation and sensitivity. Subjects exhibit more optimism and less sensitivity to probability changes when deciding about time than about money. Revealing the consequences impacts the shape of the utility function and leaves probability weighting unchanged. We also observe that the real incentives have no effect except for the reduction in decision errors. This effect is stronger for money than for time

Decision biases and entrepreneurial finance


Small Business Economics

décembre 2016, vol. 47, n°4, pp.819–834

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

Mots clés : Entrepreneurship, Decision biases, Cognitive biases, Entrepreneurial finance, Informal finance, Fundraising, Social ties, Venture performance

We study the effects of three cognitive biases by the entrepreneur on obtaining funding. We find planning fallacy to increase funding amounts, whereas optimism and overconfidence by the entrepreneur have no effects on funding amounts from others. Further, planning fallacy positively impacts the probability of strong-tie (inside) investments but negatively impacts the probability of weak-tie (outside) investments. Mediation analyses further show that planning fallacy positively impacts venture performance through both self and other investor funding amounts. Our findings are not consistent with the pecking order theory of informal finance and suggest positive effects of at least one cognitive bias on entrepreneurial business success through increased funding

Incomplete preferences and confidence


Journal of Mathematical Economics

aout 2016, vol. 65, pp.83–103

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

Mots clés : Incomplete preferences, Confidence, Multiple priors, Choice under incomplete preferences, Absence of trade

A theory of incomplete preferences under uncertainty is proposed, according to which a decision maker’s preferences are indeterminate if and only if her confidence in the relevant beliefs does not match up to the stakes involved in the decision. We use the representation of confidence in beliefs introduced in Hill (2013), and axiomatise a class of models, differing from each other in the appropriate notion of stakes. The theory naturally suggests two distinct strategies for completing preferences, and hence for choosing in the presence of incompleteness: one that relies only on beliefs in which the decision maker is sufficiently confident, and one that mobilises all beliefs, no matter how little confidence she may have in them. Axiomatic characterisations are given for completion procedures following each of the strategies. Finally, in a market setting, the incorporation of confidence is shown to add an extra friction, beyond the standard implications of non-expected utility models for Pareto optima

Markov games with frequent actions and incomplete information -- the limit case


Mathematics of Operations Research

février 2016, vol. 41, n°1, pp.49 - 71

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

Mots clés : Markov games, Incomplete information, Zero-sum games, Hamilton-Jacobi equations, Repeated games

We study the asymptotics of a class of two-player, zero-sum stochastic game with incomplete information on one side when the time span between two consecutive stages vanishes. The informed player observes the realization of a Markov chain on which the payoffs depend, whereas the noninformed player only observes his opponent’s actions. We show the existence of a limit value; this value is characterized through an auxiliary optimization problem and as the solution of a Hamilton-Jacobi equation

Measuring Loss Aversion under Ambiguity: A Method to Make Prospect Theory Completely Observable


Journal of Risk and Uncertainty

février 2016, vol. 52, n°1, pp.1-20

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

Mots clés : Prospect theory, Loss aversion, Utility for gains and losses, Risk, Ambiguity, Elicitation methods

We propose a simple, parameter-free method that, for the first time, makes it possible to completely observe Tversky and Kahneman’s (1992) prospect theory. While methods exist to measure event weighting and the utility for gains and losses separately, there was no method to measure loss aversion under ambiguity. Our method allows this and thereby it can measure prospect theory’s entire utility function. Consequently, we can properly identify properties of utility and perform new tests of prospect theory. We implemented our method in an experiment and obtained support for prospect theory. Utility was concave for gains and convex for losses and there was substantial loss aversion. Both utility and loss aversion were the same for risk and ambiguity, as assumed by prospect theory, and sign-comonotonic trade-off consistency, the central condition of prospect theory, held

Memorable Consumption


Journal of Economic Theory

septembre 2016, vol. 165, pp.414–455

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

Mots clés : Memorable goods, Consumption volatility, Consumption smoothing

People often consume non-durable goods in a way that seems inconsistent with preferences for smoothing consumption over time. We suggest that such patterns of consumption can be better explained if one takes into account the future utility flows generated by memorable consumption goods—goods, such as a honeymoon or a vacation, whose utility flow outlives their physical consumption. We consider a model in which a consumer enjoys current consumption as well as utility generated by earlier memorable consumption. Lasting utility flows are generated only by some goods, and only when their consumption exceeds customary levels by a sufficient margin. We offer axiomatic foundations for the structure of the utility function and study optimal consumption in a dynamic model. We show that rational consumers, taking into account future utility flows, would make optimal choices that rationalize lumpy patterns of consumption

Public policy to promote entrepreneurship: a call to arms


Small Business Economics

juin 2016, vol. 47, n°1, pp.35-51

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

Mots clés : Entrepreneurship, Public policy, Social welfare

We debate the motivation for and effectiveness of public policies to encourage individuals to become entrepreneurs. Reviewing established evidence we find that most Western world policies do not greatly reduce or solve any market failures but instead waste taxpayers’ money, encourage those already intent on becoming entrepreneurs, and mostly generate one-employee businesses with low-growth intentions and a lack of interest in innovating. Most policy initiatives that would have the effect of promoting valuable entrepreneurship would not be recognizable as such, because they would primarily address other market failures: A central-payer health care would remove healthcare-related distortions affecting employment choices; greater STEM education would produce more engineers of which some start valuable new firms; and labor market reform to encourage hiring immigrants in jobs they have been educated for would reduce inefficient allocation of talent to entrepreneurship