Randomized strategies and prospect theory in a dynamic context

When prospect theory (PT) is applied in a dynamic context, the probability weighting com- ponent brings new challenges. We study PT agents facing optimal timing decisions and consider the impact of allowing them to follow randomized strategies. In a continuous-time model of gam- bling and optimal stopping, Ebert and Strack (2015) show that a naive PT investor with access only to pure strategies never stops. We show that allowing randomization can signi cantly alter the predictions of their model, and can result in voluntary cessation of gambling

Randomized strategies and prospect theory in a dynamic context

When prospect theory (PT) is applied in a dynamic context, the probability weighting component brings new challenges. We study PT agents facing optimal timing decisions and consider the impact of allowing them to follow randomized strategies. In a continuous-time model of gambling and optimal stopping, Ebert and Strack (2015) show that a naive PT investor with access only to pure strategies $\textit{never}$ stops. We show that allowing randomization can significantly alter the predictions of their model, and can result in voluntary cessation of gambling

Effectiveness and cost-effectiveness of incentives as a tool for prevention of non-communicable diseases: A systematic review

The rising epidemic of non-communicable diseases (NCDs) poses substantial health and economic challenges to both individuals and society. Application of incentive-based strategies based on traditional and behavioural economic theory has emerged as a potential strategy to address rising rates of NCDs. Yet, whether or not incentives truly represent a promising strategy for addressing NCDs has not been systematically addressed nor is it clear whether certain behavioural economic strategies outperform others or simply offering a cash-based incentive for meeting a goal. In this systematic review we aim to determine whether there is an evidence base for any of these strategies. Forty-eight published randomized controlled trials (70 contrasts) evaluating the effectiveness of incentive-based strategies for improvements in NCD risk-factors were reviewed. Our primary conclusion is that there is a lack of compelling evidence that incentives of any form represent a compelling NCD reduction strategy. More evidence for long-term effectiveness and cost-effectiveness is needed to justify third party funding of any incentive based strategy

A Behavioral and Neural Evaluation of Prospective Decision-Making under Risk

Making the best choice when faced with a chain of decisions requires a person to judge both anticipated outcomes and future actions. Although economic decision-making models account for both risk and reward in single-choice contexts, there is a dearth of similar knowledge about sequential choice. Classical utility-based models assume that decision-makers select and follow an optimal predetermined strategy, regardless of the particular order in which options are presented. An alternative model involves continuously reevaluating decision utilities, without prescribing a specific future set of choices. Here, using behavioral and functional magnetic resonance imaging (fMRI) data, we studied human subjects in a sequential choice task and use these data to compare alternative decision models of valuation and strategy selection. We provide evidence that subjects adopt a model of reevaluating decision utilities, in which available strategies are continuously updated and combined in assessing action values. We validate this model by using simultaneously acquired fMRI data to show that sequential choice evokes a pattern of neural response consistent with a tracking of anticipated distribution of future reward, as expected in such a model. Thus, brain activity evoked at each decision point reflects the expected mean, variance, and skewness of possible payoffs, consistent with the idea that sequential choice evokes a prospective evaluation of both available strategies and possible outcomes

Risk, Credit, and Insurance in Peru: Field Experimental Evidence

This paper reports the results of behavioral economic experiments conducted in Peru to examine the relationship amongst risk preferences, loan take-up, and insurance purchase decisions. This area-based yield insurance can help reduce people's vulnerability to large scale covariate shocks, and can also lower the loan default probability under extreme negative covariate shocks. In a context of collateralized formal credit markets, we provide suggestive evidence that insurance may help reduce the fear of losing collateral that prevents potential borrowers from taking loans. Framing these experiments to recreate a real life situation, we started with a Baseline Game where subjects had to choose between a fallback production project and an uninsured loan.We then introduced a third project choice--loan with yield insurance (Insurance Game)--which allows us to measure the effect of introducing insurance on the demand for loans. Overall, more than 50 percent of the subjects are willing to buy insurance in this insurance game. Further, controling for choices made in the baseline game, covariate shocks experienced earlier, and previous rounds' winnings, we find that the decision to take the insured loan (uninsured loan) rather than any of the other two projects is predicted by wealth and lower (higher) levels of risk aversion. Interestingly, this relationship with risk aversion continues to hold when we control for the overweighting of low-probability events observed in the data.area-yield insurance, credit, covariate risk, idiosyncratic risk, risk aversion, probability weighting, experimental economics, Peru

On optimal investment for a behavioural investor in multiperiod incomplete market models

We provide easily verifiable conditions for the well-posedness of the optimal investment problem for a behavioral investor in an incomplete discrete-time multiperiod financial market model, for the first time in the literature. Under two different sets of assumptions we also establish the existence of optimal strategies

The Future of Retail Operations

Retailing consists of all the activities associated with the selling of goods to the final consumer. In this article, we review the research on retail operations published in Manufacturing & Service Operations Research (M&SOM) since 1999. We then discuss the current retail landscape and the new research directions it offers, in which M&SOM can play a prominent role