Decision analysis using targets instead of utility functions

DECISIONS IN ECONOMICS AND FINANC

Experimental Evidence for Quantum Structure in Cognition

We proof a theorem that shows that a collection of experimental data of membership weights of items with respect to a pair of concepts and its conjunction cannot be modeled within a classical measure theoretic weight structure in case the experimental data contain the effect called overextension. Since the effect of overextension, analogue to the well-known guppy effect for concept combinations, is abundant in all experiments testing weights of items with respect to pairs of concepts and their conjunctions, our theorem constitutes a no-go theorem for classical measure structure for common data of membership weights of items with respect to concepts and their combinations. We put forward a simple geometric criterion that reveals the non classicality of the membership weight structure and use experimentally measured membership weights estimated by subjects in experiments to illustrate our geometrical criterion. The violation of the classical weight structure is similar to the violation of the well-known Bell inequalities studied in quantum mechanics, and hence suggests that the quantum formalism and hence the modeling by quantum membership weights can accomplish what classical membership weights cannot do.Comment: 12 pages, 3 figure

Evidence for the Gompertz Curve in the Income Distribution of Brazil 1978-2005

This work presents an empirical study of the evolution of the personal income distribution in Brazil. Yearly samples available from 1978 to 2005 were studied and evidence was found that the complementary cumulative distribution of personal income for 99% of the economically less favorable population is well represented by a Gompertz curve of the form $G(x)=\exp [\exp (A-Bx)]$, where $x$ is the normalized individual income. The complementary cumulative distribution of the remaining 1% richest part of the population is well represented by a Pareto power law distribution $P(x)= \beta x^{-\alpha}$. This result means that similarly to other countries, Brazil's income distribution is characterized by a well defined two class system. The parameters $A$, $B$, $\alpha$, $\beta$ were determined by a mixture of boundary conditions, normalization and fitting methods for every year in the time span of this study. Since the Gompertz curve is characteristic of growth models, its presence here suggests that these patterns in income distribution could be a consequence of the growth dynamics of the underlying economic system. In addition, we found out that the percentage share of both the Gompertzian and Paretian components relative to the total income shows an approximate cycling pattern with periods of about 4 years and whose maximum and minimum peaks in each component alternate at about every 2 years. This finding suggests that the growth dynamics of Brazil's economic system might possibly follow a Goodwin-type class model dynamics based on the application of the Lotka-Volterra equation to economic growth and cycle.Comment: 22 pages, 15 figures, 4 tables. LaTeX. Accepted for publication in "The European Physical Journal B

Applying the Benchmarking Procedure: A Decision Criterion of Choice Under Risk

Modeling risk in a prescriptively plausible way represents a major issue in decision theory. The benchmarking procedure, being based on the satisficing principle and providing a probabilistic interpretation of expected utility (EU) theory, is prescriptive. Because it is a target-based language, the benchmarking procedure can be applied naturally to finance. In finance, the centrality of risk is widely recognized, but the risk measures that are commonly used to assess risk are too poor as a decision making tool. In this paper we propose a two-stage decision criterion of choice under risk that provides an application of benchmarking to finance through a risk measure. We will analyze some nonexpected utility theories, in particular lottery dependent utility, as potential frameworks for our criterion. Copyright Springer 2006Benchmarking, decision criterion, lottery-dependent utility, risk measure, two-stage procedure,

Economics at the FTC: Data Intensive Mergers and Policy R&D

Economics at the Federal Trade Commission (FTC) supports both the competition and consumer protection missions of the agency. In this year’s essay we discuss a range of activities focusing on data-intensive antitrust cases in the hospital and consumer products industries. We also discuss our most recent work on gasoline pricing. Policy-focused research and competition advocacy takes center stage as we discuss some health care advocacy work in the administration of pharmaceutical insurance benefits and efforts to understand the real estate business more completely. Finally, we describe our efforts to quantify the extent of “identity theft”. Copyright Springer Science+Business Media, LLC 2006antitrust, consumer protection, FTC, hospitals, identity theft, mergers, petroleum, pharmaceuticals, real estate,