Evolutionary Stability of Prospect Theory Preferences

We demonstrate that in simple 2 X 2 games (cumulative) prospect theory preferences can be evolutionarily stable, i.e. a population of players with prospect theory preferences can not be invaded by more rational players. This holds also if probability weighting is applied to the probabilities of mixed strategies. We also show that in a typical game with infinitely many strategies, the "war of attrition", probability weighting is evolutionarily stable. Finally, we generalize to other notions of stability. Our results may help to explain why probability weighting is generally observed in humans, although it is not optimal in usual decision problems.prospect theory, existence of Nash equilibria, evolutionary stability

Cumulative Prospect Theory and the St.Petersburg Paradox

We find that in cumulative prospect theory (CPT) with a concave value function in gains, a lottery with finite expected value may have infinite subjective value. This problem does not occur in expected utility theory. We characterize situations in CPT where the problem can be resolved. In particular, we define a class of admissible probability distributions and admissible parameter regimes for the weighting-- and value functions. In both cases, finiteness of the subjective value can be proved. Alternatively, we suggest a new weighting function for CPT which guarantees finite subjective value for all lotteries with finite expected value, independent of the choice of the value function.

Prospect Theory around the World

We present results from the first large-scale international survey on risk preferences, conducted in 45 countries. We show substantial cross-country differences in risk aversion, loss aversion and probability weighting. Moreover, risk attitudes in our sample depend not only on economic conditions, but also on cultural factors, as measured by the Hofstede dimensions Individuality and Uncertainty Avoidance. The presented data might also serve as an interesting starting point for further research in cultural economics.Risk preferences; prospect theory; cross-cultural comparison

A secret erosion of the lockdown? The activity patterns of Britons in March and April 2020

Using the Apple Maps Mobility Trends Reports, the Google COVID-19 Community Mobility Reports, and data from a worldwide online survey, Marc Oliver Rieger discusses trends in activity patterns in the UK during the lockdown. Specifically, he finds that there was a significant re-increase of activities before the measures were relaxed – a trend also observed in other countries

How Time Preferences Differ: Evidence from 45 Countries

We present results from the first large-scale international survey on time discounting, conducted in 45 countries. Cross-country variation cannot simply be explained by economic variables such as interest rates or in ation. In particular, we find strong evidence for cultural differences, as measured by the Hofstede cultural dimensions. For example, high levels of Uncertainty Avoidance or Individualism are both associated with strong hyperbolic discounting. Moreover, as application of our data, we find evidence for an impact of time preferences on the capability of technological innovations in a country and on environmental protection.Time preferences; Intertemporal decision; Endogenous preference; Cross-cultural comparison

Hedging with regret

This paper investigates corporate hedging under regret aversion. Regret-averse firms try to avoid deviations of their hedging policy from the ex post best policy, an intuitive consideration if one has to justify one's decisions afterward. The study presents a model of a firm that faces uncertain prices and seeks to hedge both profit risk and regret risk with derivatives. It characterizes optimal hedge positions and shows that regret aversion leads to stronger incentives to hedge downside price risk than standard expected utility theory. In the profit region of the price distribution, however, regret aversion reduces the hedging of price risk to avoid large regret in the case of increasing prices. The results show that regret aversion has a strong effect on the choice of the hedging instrument and provides a preference-based explanation for the use of options in corporate risk management

Local minimizers of functionals with multiple volume constraints

International audienceWe study variational problems with volume constraints, i.e., with level sets of prescribed measure. We introduce a numerical method to approximate local minimizers and illustrate it with some two-dimensional examples. We demonstrate numerically nonexistence results which had been obtained analytically in previous work. Moreover, we show the existence of discontinuous dependence of global minimizers from the data by using a Gamma-limit argument and illustrate this with numerical computations. Finally we construct explicitly local and global minimizers for problems with two volume constraints

Cumulative prospect theory and the St.Petersburg paradox

We find that in cumulative prospect theory (CPT) with a concave value function in gains, a lottery with finite expected value may have infinite subjective value. This problem does not occur in expected utility theory. We characterize situations in CPT where the problem can be resolved. In particular, we define a class of admissible probability distributions and admissible parameter regimes for the weighting-- and value functions. In both cases, finiteness of the subjective value can be proved. Alternatively, we suggest a new weighting function for CPT which guarantees finite subjective value for all lotteries with finite expected value, independent of the choice of the value function

Wie beeinflusst Basel II die Kreditkonditionen von öffentlich-rechtlichen Körperschaften? Empirische Befunde aus der Schweiz

Wir untersuchen die Effekte von Basel II auf Kredite, die in den Jahren 2006 und 2007 (also vor und nach Inkrafttreten der neuen Regulierungen) an schweizer Städte und Gemeinden vergeben wurden. In einer empirischen Analyse bewerteten wir deren jeweilige Bonität, sowie die Margen ihrer Kredite. Es zeigte sich, dass durch Basel II die Margen bei Banken als Kreditgeber generell sanken, nicht jedoch bei anderen Kreditgebern. Auch nahm bei Banken die Abhängigkeit der Margen von der Bonität des Kreditnehmers zu. Desweiteren gab es signifikante Unterschiede zwischen den Kreditkonditionen je nach Kreditgeber und Modalitäten der Kreditvergabe, wie zum Beispiel eine Verlängerung eines bestehenden Kredites. Diese Erkenntnisse könnten für Städte und Gemeinden ein erhebliches Einsparungspotential bieten.We study effects of Basel II on credits for Swiss towns and cities in the years 2006 (before Basel II) and 2007 (after Basel II). We collected data of these loans and computed their margins. Moreover we collected data on the financial situation of the towns and cities and used this to compute a credit ranking for each town and city. We show that Basel II decreased the margins when banks were the creditor, but not when other institutions (e.g. pension funds) provided the loan. With banks also the impact of the credit ranking increased after Basel II. We also find significant effects of the type of the creditor and of the circumstances of the loan acquisition on the margins. In particular, we find that new loans are generally cheaper than extensions of existing loans. Our results shed some light on the effects of Basel II, but can also have potential to decrease the costs for towns and cities when acquiring loans

Meaningful entertainment experiences and self-transcendence: Cultural variations shape elevation, values, and moral intentions

Previous research reported that meaningful entertainment experiences are associated with elevation, mixed affect, physical indicators, and moral motivations. The importance of values, particularly altruistic values and self-transcendence, was thought to play a central role. Although the importance of values has been found to vary across cultures, little research so far has examined cultural variations in the response towards meaningful entertainment. The present study, therefore, investigated how cultural variations in self-construals and the importance of values (self-enhancement, conservation, and self-transcendence) in movies are related to meaningful entertainment experiences. An online experiment in Germany and the United Arab Emirates (N = 245) confirmed that meaningful entertainment elicited elevation. Elevation was associated with conservation and self-transcendence values and, via this path, increased moral motivations. An interdependent self-construal was related to elevation and to moral motivations. The results are discussed in light of current conceptualizations of inward- and outward-oriented gratifications of meaningful entertainment and the impact of values