Pessimistic portfolio allocation and Choquet expected utility

Recent developments in the theory of choice under uncertainty and risk yield a pessimistic decision theory that replaces the classical expected utility criterion with a Choquet expectation that accentuates the likelihood of the least favorable outcomes. A parallel theory has recently emerged in the literature on risk assessment. It is shown that a general form of pessimistic portfolio optimization based on the Choquet approach may be formulated as a problem of linear quantile regression.

Synergy Modelling and Financial Valuation : the contribution of Fuzzy Integrals.

Les méthodes d’évaluation financière utilisent des opérateurs d’agrégation reposant sur les propriétés d’additivité (sommations, intégrales de Lebesgue). De ce fait, elles occultent les phénomènes de renforcement et de synergie (ou de redondance) qui peuvent exister entre les éléments d’un ensemble organisé. C’est particulièrement le cas en ce qui concerne le problème d’évaluation financière du patrimoine d’une entreprise : en effet, en pratique, il est souvent mis en évidence une importante différence de valorisation entre l’approche « valeur de la somme des éléments » (privilégiant le point de vue financier) et l’approche « somme de la valeur des différents éléments » (privilégiant le point de vue comptable). Les possibilités offertes par des opérateurs d’agrégation comme les intégrales floues (Sugeno, Grabisch, Choquet) permettent, au plan théorique, de modéliser l’effet de synergie. La présente étude se propose de valider empiriquement les modalités d’implémentation opérationnelle de ce modèle à partir d’un échantillon d’entreprises cotées ayant fait l’objet d’une évaluation lors d’une OPA.Financial valuation methods use additive aggregation operators. But a patrimony should be regarded as an organized set, and additivity makes it impossible for these aggregation operators to formalize such phenomena as synergy or mutual inhibition between the patrimony’s components. This paper considers the application of fuzzy measure and fuzzy integrals (Sugeno, Grabisch, Choquet) to financial valuation. More specifically, we show how integration with respect to a non additive measure can be used to handle positive or negative synergy in value construction.Fuzzy measure; Fuzzy integral; Aggregation operator; Synergy; Financial valuation;

Coherent frequentism

By representing the range of fair betting odds according to a pair of confidence set estimators, dual probability measures on parameter space called frequentist posteriors secure the coherence of subjective inference without any prior distribution. The closure of the set of expected losses corresponding to the dual frequentist posteriors constrains decisions without arbitrarily forcing optimization under all circumstances. This decision theory reduces to those that maximize expected utility when the pair of frequentist posteriors is induced by an exact or approximate confidence set estimator or when an automatic reduction rule is applied to the pair. In such cases, the resulting frequentist posterior is coherent in the sense that, as a probability distribution of the parameter of interest, it satisfies the axioms of the decision-theoretic and logic-theoretic systems typically cited in support of the Bayesian posterior. Unlike the p-value, the confidence level of an interval hypothesis derived from such a measure is suitable as an estimator of the indicator of hypothesis truth since it converges in sample-space probability to 1 if the hypothesis is true or to 0 otherwise under general conditions.Comment: The confidence-measure theory of inference and decision is explicitly extended to vector parameters of interest. The derivation of upper and lower confidence levels from valid and nonconservative set estimators is formalize

Actual and Virtual Events in the Quantum Domain

The actual/virtual distinction is used to give an alternative account of quantum interference by way of a new theory of probability. The new theory is obtained by changing one of the axioms of the canonical theory of probability while keeping the other axioms fixed. It is used to give an alternative account of constructive quantum interference in the two-slit experiment. The account crucially involves a distinction between actual and virtual probabilities. Although actual probabilities are operational and virtual probabilities are not, there is a substantial connection between them. Virtual probabilities may be obtained indirectly from actual probabilities. In showing this, interpretive considerations are brought to bear including some having to do with quantum non-locality. Directions for future research are discussed in closing.La distinción actual/virtual se utiliza para dar una explicación alternativa de la interferencia cuántica a través de una nueva teoría de la probabilidad. La nueva teoría se ha obtenido cambiando uno de los axiomas de la teoría canónica de la probabilidad y manteniendo los otros axiomas fijos. Se usa para dar una explicación alternativa de la interferencia cuántica constructiva en el experimento de la doble rendija. El informe fundamentalmente implica una distinción entre las probabilidades actuales y virtuales. Aunque las probabilidades actuales son operativas y las probabilidades virtuales no, hay una relación sustancial entre ellas. Probabilidades virtuales pueden obtenerse indirectamente a partir de las probabilidades reales. Para demostrar esta interpretación hay que tener en cuenta las consideraciones de interpretación que se ejercen entre ellos y que tienen relación con la no-localidad cuántica. Directrices para futuras investigaciones se abordan al final del artículo

Exchangeable lower previsions

We extend de Finetti's (1937) notion of exchangeability to finite and countable sequences of variables, when a subject's beliefs about them are modelled using coherent lower previsions rather than (linear) previsions. We prove representation theorems in both the finite and the countable case, in terms of sampling without and with replacement, respectively. We also establish a convergence result for sample means of exchangeable sequences. Finally, we study and solve the problem of exchangeable natural extension: how to find the most conservative (point-wise smallest) coherent and exchangeable lower prevision that dominates a given lower prevision.Comment: 1 figure. 26 pages. Submitted for publicatio

Actual and Virtual Events in the Quantum Domain Fred Kronz

The actual/virtual distinction is used to give an alternative account of quantum interference by way of a new theory of probability. The new theory is obtained by changing one of the axioms of the canonical theory of probability while keeping the other axioms fixed. It is used to give an alternative account of constructive quantum interference in the two-slit experiment. The account crucially involves a distinction between actual and virtual probabilities. Although actual probabilities are operational and virtual probabilities are not, there is a substantial connection between them. Virtual probabilities may be obtained indirectly from actual probabilities. In showing this, interpretive considerations are brought to bear including some having to do with quantum non-locality. Directions for future research are discussed in closing.La distinción actual/virtual se utiliza para dar una explicación alternativa de la interferencia cuántica a través de una nueva teoría de la probabilidad. La nueva teoría se ha obtenido cambiando uno de los axiomas de la teoría canónica de la probabilidad y manteniendo los otros axiomas fijos. Se usa para dar una explicación alternativa de la interferencia cuántica constructiva en el experimento de la doble rendija. El informe fundamentalmente implica una distinción entre las probabilidades actuales y virtuales. Aunque las probabilidades actuales son operativas y las probabilidades virtuales no, hay una relación sustancial entre ellas. Probabilidades virtuales pueden obtenerse indirectamente a partir de las probabilidades reales. Para demostrar esta interpretación hay que tener en cuenta las consideraciones de interpretación que se ejercen entre ellos y que tienen relación con la no-localidad cuántica. Directrices para futuras investigaciones se abordan al final del artículo

Objective and Subjective Rationality in a Multiple Prior Model

A decision maker is characterized by two binary relations. The first reflects decisions that are rational in an “objective” sense: the decision maker can convince others that she is right in making them. The second relation models decisions that are rational in a “subjective” sense: the decision maker cannot be convinced that she is wrong in making them. We impose axioms on these relations that allow a joint representation by a single set of prior probabilities. It is “objectively rational” to choose f in the presence of g if and only if the expected utility of f is at least as high as that of g given each and every prior in the set. It is “subjectively rational” to choose f rather than g if and only if the minimal expected utility of f (relative to all priors in the set) is at least as high as that of g.Rationality, Multiple Priors.

Ambiguity and Social Interaction

We present a non-technical account of ambiguity in strategic games and show how it may be applied to economics and social sciences. Optimistic and pessimistic responses to ambiguity are formally modelled. We show that pessimism has the effect of increasing (decreasing) equilibrium prices under Cournot (Bertrand) competition. In addition the effects of ambiguity on peace-making are examined. It is shown that ambiguity may select equilibria in coordination games with multiple equilibria. Some comparative statics results are derived for the impact of ambiguity in games with strategic complements

Testing best practices to reduce the overconfidence bias in multi-criteria decision analysis

This paper explores the effectiveness of several methods to reduce the overconfidence bias when eliciting continuous probability distributions in the context of multicriteria decision analysis. We examine the effectiveness of using a fixed value method (as opposed to the standard fixed probability method) and the use of counterfactuals and hypothetical bets to increase the range of the distributions and to correct possible median displacements. The results show that the betting procedure to correct the median is quite effective, but the methods to increase the range of estimates have only a have small, but positive effect

Ambiguity and Social Interaction

We present a non-technical account of ambiguity in strategic games and show how it may be applied to economics and social sciences. Optimistic and pessimistic responses to ambiguity are formally modelled. We show that pessimism has the effect of increasing (decreasing) equilibrium prices under Cournot (Bertrand) competition. In addition the effects of ambiguity on peace-making are examined. It is shown that ambiguity may select equilibria in coordination games with multiple equilibria. Some comparative statics results are derived for the impact of ambiguity in games with strategic complements.Ambiguity, Optimism, Pessimism, Strategic Games, Oligopoly, Strategic Delegation,Peace-making, Strategic Complements, Choquet Expected Utility