Under stochastic dominance Choquet-expected utility and anticipated utility are identical

The aim of this paper is to convince the reader that Choquet-expected utility, as initiated by Schmeidler (1982, 1989) for decision making under uncertainty, when formulated for decision making under risk naturally leads to anticipated utility, as initiated by Quiggin/Yaari. Thus the two generalizations of expected utility in fact are one

Comonotonic Independence: The Critical Test between Classical and Rank-Dependent Utility Theories

This article compares classical expected utility (EU) with the more general rank-dependent utility (RDU) models. The difference between the independence condition for preferences of EU and its comonotonic generalization in RDU provides the exact demarcation between EU and rank-dependent models. Other axiomatic differences are not essential. An experimental design is described that tests this difference between independence and comonotonic independence in its most basic form and is robust against violations of other assumptions that may confound the results, in particular the reduction principle and transitivity. It is well known that in the classical counterexamples to EU, comonotonic independence performs better than full-force independence. For our more general choice pairs, however, we find that comonotonic independence does not perform better. This is contrary to our prior expectation and suggests that rank-dependent models, in full generality, do not provide a descriptive improvement over EU. For rank-dependent models to have a future, submodels and choice situations need to be identified for which rank-dependence does contribute descriptively

Operator theory and function theory in Drury-Arveson space and its quotients

The Drury-Arveson space $H^2_d$, also known as symmetric Fock space or the $d$-shift space, is a Hilbert function space that has a natural $d$-tuple of operators acting on it, which gives it the structure of a Hilbert module. This survey aims to introduce the Drury-Arveson space, to give a panoramic view of the main operator theoretic and function theoretic aspects of this space, and to describe the universal role that it plays in multivariable operator theory and in Pick interpolation theory.Comment: Final version (to appear in Handbook of Operator Theory); 42 page

‘Sub-Prime’ Water, Low-Security Entitlements and Policy Challenges in Over-Allocated River Basins: the Case of the Murray–Darling Basin

Environmental policy is often implemented using market instruments. In some cases, including carbon taxing, the links between financial products and the environmental objectives, are transparent. In other cases, including water markets, the links are less transparent. In Australia’s Murray–Darling Basin (MDB), financial water products are known as ‘entitlements’, and are similar to traditional financial products, such as shares. The Australian water market includes ‘Low Security’ entitlements, which are similar to ‘sub-prime’ mortgage bonds because they are unlikely to yield an amount equal to their financial worth. Nearly half the water purchased under the Murray–Darling Basin Plan for environmental purposes is ‘Low Security’. We suggest that the current portfolio of water held by the Australian Government for environmental purposes reflects the mortgage market in the lead-up to the global financial crisis. Banks assumed that the future value of the mortgage market would reflect past trends. Similarly, it is assumed that the future value of water products will reflect past trends, without considering climate change. Historic records of allocations to ‘Low Security’ entitlements in the MDB suggest that, in the context of climate change, the Basin Plan water portfolio may fall short of the target annual average yield of 2075 GL by 511 GL. We recommend adopting finance sector methods including ‘hedging’ ‘Low Security’ entitlements by purchasing an additional 322–2755 GL of ‘Low Security’, or 160–511 GL of ‘High Security’ entitlements. Securing reliable environmental water is a global problem. Finance economics present opportunities for increasing the reliability of environmental flows

"If only I had taken the other road...": Regret, risk and reinforced learning in informed route-choice

This paper presents a study of the effect of regret on route choice behavior when both descriptional information and experiential feedback on choice outcomes are provided. The relevance of Regret Theory in travel behavior has been well demonstrated in non-repeated choice environments involving decisions on the basis of descriptional information. The relation between regret and reinforced learning through experiential feedbacks is less understood. Using data obtained from a simple route-choice experiment involving different levels of travel time variability, discrete-choice models accounting for regret aversion effects are estimated. The results suggest that regret aversion is more evident when descriptional information is provided ex-ante compared to a pure learning from experience condition. Yet, the source of regret is related more strongly to experiential feedbacks rather than to the descriptional information itself. Payoff variability is negatively associated with regret. Regret aversion is more observable in choice situations that reveal risk-seeking, and less in the case of risk-aversion. These results are important for predicting the possible behavioral impacts of emerging information and communication technologies and intelligent transportation systems on travelers' behavior. © 2012 Springer Science+Business Media, LLC