24 research outputs found
Making the Anscombe-Aumann approach to ambiguity suitable for descriptive applications
The Anscombe-Aumann (AA) model, originally introduced to give a normative basis to expected utility, is nowadays mostly used for another purpose: to analyze deviations from expected utility due to ambiguity (unknown probabilities). The AA model makes two ancillary assumptions that do not refer to ambiguity: expected utility for risk and backward induction. These assumptions, even if normatively appropriate, fail descriptively. This paper relaxes these ancillary assumptions to avoid the descriptive violations, while maintaining AA\xe2\x80\x99s convenient mixture operation. Thus, it becomes possible to test and apply all AA-based ambiguity theories descriptively while avoiding confounds due to violated ancillary assumptions. The resulting tests use only simple stimuli, avoiding noise due to complexity. We demonstrate the latter in a simple experiment where we find that three assumptions about ambiguity, commonly made in AA theories, are violated: reference independence, universal ambiguity aversion, and weak certainty independence. The second, theoretical, part of the paper accommodates the violations found for the first ambiguity theory in the AA model\xe2\x80\x94Schmeidler\xe2\x80\x99s CEU theory\xe2\x80\x94by introducing and axiomatizing a reference dependent generalization. That is, we extend the AA ambiguity model to prospect theory
THE IMPACT OF ANALYTICAL SUPPORT AND PREFERENCE DETERMINATION ON CONSISTENCY IN E-NEGOTIATIONS â A NEW METHOD AND PRELIMINARY RESULTS
The willingness-to-accept/willingness-to-pay disparity in repeated markets : loss aversion or 'bad-deal' aversion?
Several experimental studies have reported that an otherwise robust regularity-the disparity between Willingness-To-Accept and Willingness-To-Pay-tends to be greatly reduced in repeated markets, posing a serious challenge to existing reference-dependent and reference-independent models alike. This article offers a new account of the evidence, based on the assumptions that individuals are affected by good and bad deals relative to the expected transaction price (price sensitivity), with bad deals having a larger impact on their utility ('bad-deal' aversion). These features of preferences explain the existing evidence better than alternative approaches, including the most recent developments of loss aversion models
Pawns and queens revisited: public provision of private goods when individuals make mistakes
Behavioural economics, Optimal taxation, Public provision, H21, H42,