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

Robust Social Decisions


American Economic Review

septembre 2016, vol. 106, n°9, pp.2407-2425

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

Mots clés : Social Choice, Clubs, Committees, Associations, Criteria for Decision-Making under Risk, Uncertainty

We propose and operationalize normative principles to guide social decisions when individuals potentially have imprecise and heterogeneous beliefs, in addition to conflicting tastes or interests. To do so we adapt the standard Pareto principle to those preference comparisons that are robust to belief imprecision and characterize social preferences that respect this robust principle. We also characterize a suitable restriction of this principle. The former principle provides stronger guidance when it can be satisfied; when it cannot, the latter always provides minimal guidance

Spurious Unanimity and the Pareto Principle


Economics and Philosophy

novembre 2016, vol. 32, n°3, pp.511-532

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

Mots clés : Pareto principle, unanimity preservation, spurious unanimity, aggregation of ex ante preferences

The Utilitarian Relevance of the Aggregation Theorem


American Economic Journal: Microeconomics

août 2016, vol. 8, n°3, pp.289-306

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

Mots clés : Utilitarianism, Aggregation Theorem, Impartial Observer Theorem, Cardinal utility, VNM utility, Harsanyi, Sen

Harsanyi (1955) invested his Aggregation Theorem and Impartial Observer Theorem with utilitarian sense, but Sen (1986) described them as "representation theorems" with little ethical import. This critical view has never been subjected to full analytical scrutiny. The formal argument we provide here supports the utilitarian relevance of the Aggregation Theorem. Following a hint made by Sen himself, we posit an exogeneous utilitarian ordering that evaluates riskless options by the sum of individual utilities, and we show that any social observer who obeys the conditions of the Aggregation Theorem evaluates social states in terms of a weighted variant of this utilitarian sum.

A world of models: review of Mary S. Morgan, The world in the model: how economists work and think (book review)


Journal of Economic Methodology

2015, vol. 22, n°2, pp.235-240

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