Measuring loss aversion under ambiguity: a method to make prospect theory completely observable

We propose a simple, parameter-free method that, for the first time, makes it possible to completely observe Tversky and Kahneman’s (1992) prospect theory. While methods exist to measure event weighting and the utility for gains and losses separately, there was no method to measure loss aversion under ambiguity. Our method allows this and thereby it can measure prospect theory’s entire utility function. Consequently, we can properly identify properties of utility and perform new tests of prospect theory. We implemented our method in an experiment and obtained support for prospect theory. Utility was concave for gains and convex for losses and there was substantial loss aversion. Both utility and loss aversion were the same for risk and ambiguity, as assumed by prospect theory, and sign-comonotonic trade-off consistency, the central condition of prospect theory, held

Paradoxes and Mechanisms for Choice under Risk

Experiments on choice under risk typically involve multiple decisions by individual subjects. The choice of mechanism for selecting decision(s) for payoff is an essential design feature unless subjects isolate each one of the multiple decisions. We report treatments with different payoff mechanisms but the same decision tasks. The data show large differences across mechanisms in subjects’ revealed risk preferences, a clear violation of isolation. We illustrate the importance of these mechanism effects by identifying their implications for classical tests of theories of decision under risk. We discuss theoretical properties of commonly used mechanisms, and new mechanisms introduced herein, in order to clarify which mechanisms are theoretically incentive compatible for which theories. We identify behavioral properties of some mechanisms that can introduce bias in elicited risk preferences – from cross-task contamination – even when the mechanism used is theoretically incentive compatible. We explain that selection of a payoff mechanism is an important component of experimental design in many topic areas including social preferences, public goods, bargaining, and choice under uncertainty and ambiguity as well as experiments on decisions under risk

Giving in the Face of Risk

The decision how to share resources with others often needs to be taken under uncertainty on its allocational consequences. Although risk preferences are likely important, existing research is silent about how social and risk preferences interact in such situations. In this paper we provide experimental evidence on this question. In a first experiment givers are not exposed to risk while beneficiaries’ final earnings may be larger or smaller than the allocation itself, depending on the realized state of the world. In a second experiment, risk affects the earnings of givers but not of beneficiaries. We find that individuals’ risk preferences are predictive for giving in both experiments. Increased risk exposure of beneficiaries tends to decrease giving whereas increased risk exposure of givers has no effect. Giving under risk is strongly correlated with giving in the absence of risk. We find limited support for existing models of ex-post and ex-ante fairness. Our results point to the importance of incorporating risk preferences in models of social preferences

A Revealed Reference Point for Prospect Theory

Without an instrument to identify the reference point, prospect theory includes a degree of freedom that makes the model difficult to falsify. To address this issue, we propose a foundation for prospect theory that advances existing approaches with three innovations. First, the reference point is not known a priori; if preferences are reference-dependent, the reference point is revealed from behavior. Second, the key preference axiom is formulated as a consistency property for attitudes towards probabilities; it entails both a revealed preference test for reference-dependence and a tool suitable for empirical measurement. Third, minimal assumptions are imposed for outcomes, thereby extending the model to general settings. By incorporating these three features we deliver general foundations for prospect theory that show how reference points can be identified and how the model can be falsified

Low-mass and sub-stellar eclipsing binaries in stellar clusters

We highlight the importance of eclipsing double-line binaries in our understanding on star formation and evolution. We review the recent discoveries of low-mass and sub-stellar eclipsing binaries belonging to star-forming regions, open clusters, and globular clusters identified by ground-based surveys and space missions with high-resolution spectroscopic follow-up. These discoveries provide benchmark systems with known distances, metallicities, and ages to calibrate masses and radii predicted by state-of-the-art evolutionary models to a few percent. We report their density and discuss current limitations on the accuracy of the physical parameters. We discuss future opportunities and highlight future guidelines to fill gaps in age and metallicity to improve further our knowledge of low-mass stars and brown dwarfs.Comment: 30 pages, 5 figures, no table. Review pape

Multi-messenger observations of a binary neutron star merger

On 2017 August 17 a binary neutron star coalescence candidate (later designated GW170817) with merger time 12:41:04 UTC was observed through gravitational waves by the Advanced LIGO and Advanced Virgo detectors. The Fermi Gamma-ray Burst Monitor independently detected a gamma-ray burst (GRB 170817A) with a time delay of ~1.7 s with respect to the merger time. From the gravitational-wave signal, the source was initially localized to a sky region of 31 deg2 at a luminosity distance of 40+8-8 Mpc and with component masses consistent with neutron stars. The component masses were later measured to be in the range 0.86 to 2.26 Mo. An extensive observing campaign was launched across the electromagnetic spectrum leading to the discovery of a bright optical transient (SSS17a, now with the IAU identification of AT 2017gfo) in NGC 4993 (at ~40 Mpc) less than 11 hours after the merger by the One- Meter, Two Hemisphere (1M2H) team using the 1 m Swope Telescope. The optical transient was independently detected by multiple teams within an hour. Subsequent observations targeted the object and its environment. Early ultraviolet observations revealed a blue transient that faded within 48 hours. Optical and infrared observations showed a redward evolution over ~10 days. Following early non-detections, X-ray and radio emission were discovered at the transient’s position ~9 and ~16 days, respectively, after the merger. Both the X-ray and radio emission likely arise from a physical process that is distinct from the one that generates the UV/optical/near-infrared emission. No ultra-high-energy gamma-rays and no neutrino candidates consistent with the source were found in follow-up searches. These observations support the hypothesis that GW170817 was produced by the merger of two neutron stars in NGC4993 followed by a short gamma-ray burst (GRB 170817A) and a kilonova/macronova powered by the radioactive decay of r-process nuclei synthesized in the ejecta

Signaling probabilities in ambiguity: who reacts to vague news?

Ambiguity affects decisions of people who exhibit a distaste of and require a premium for dealing with it. Do ambiguity-neutral subjects completely disregard ambiguity and respond to any vague news? We couple decision-making in ambiguity with a preliminary information processing stage, where news is used to test prior beliefs and, possibly but not necessarily, update them. All decision-makers, including ambiguity-neutral, recognize and account for ambiguity at this stage; higher confidence makes ambiguity-neutral subjects less susceptible to vague news. In a two-color Ellsberg experiment with imprecise signals about the unknown probability of success they are less likely to respond to signals; the difference between them and non-neutral to ambiguity subjects vanishes for high precision signals. Less than 60% subjects choose the ambiguous urn, even for high communicated probabilities of success, suggesting many participants, especially ambiguity-neutral, discard vague news at the information processing stage. JEL: C90, D01, D81, as well as seminar participants at ETH-Zürich, University of Essex, University of Glasgow and University of Hamburg, and participants of iCare conference at HSE in Perm and JE on Ambiguity and Strategic Interactions at the University of Grenoble for helpful comments, suggestions and encouragement. All remaining errors are ours

Gravitational Waves and Gamma-Rays from a Binary Neutron Star Merger: GW170817 and GRB 170817A

On 2017 August 17, the gravitational-wave event GW170817 was observed by the Advanced LIGO and Virgo detectors, and the gamma-ray burst (GRB) GRB 170817A was observed independently by the Fermi Gamma-ray Burst Monitor, and the Anti-Coincidence Shield for the Spectrometer for the International Gamma-Ray Astrophysics Laboratory. The probability of the near-simultaneous temporal and spatial observation of GRB 170817A and GW170817 occurring by chance is $5.0\times {10}^{-8}$. We therefore confirm binary neutron star mergers as a progenitor of short GRBs. The association of GW170817 and GRB 170817A provides new insight into fundamental physics and the origin of short GRBs. We use the observed time delay of $(+1.74\pm 0.05)\,{\rm{s}}$ between GRB 170817A and GW170817 to: (i) constrain the difference between the speed of gravity and the speed of light to be between $-3\times {10}^{-15}$ and $+7\times {10}^{-16}$ times the speed of light, (ii) place new bounds on the violation of Lorentz invariance, (iii) present a new test of the equivalence principle by constraining the Shapiro delay between gravitational and electromagnetic radiation. We also use the time delay to constrain the size and bulk Lorentz factor of the region emitting the gamma-rays. GRB 170817A is the closest short GRB with a known distance, but is between 2 and 6 orders of magnitude less energetic than other bursts with measured redshift. A new generation of gamma-ray detectors, and subthreshold searches in existing detectors, will be essential to detect similar short bursts at greater distances. Finally, we predict a joint detection rate for the Fermi Gamma-ray Burst Monitor and the Advanced LIGO and Virgo detectors of 0.1-1.4 per year during the 2018-2019 observing run and 0.3-1.7 per year at design sensitivity

Search for gravitational waves from Scorpius X-1 in the second Advanced LIGO observing run with an improved hidden Markov model

We present results from a semicoherent search for continuous gravitational waves from the low-mass x-ray binary Scorpius X-1, using a hidden Markov model (HMM) to track spin wandering. This search improves on previous HMM-based searches of LIGO data by using an improved frequency domain matched filter, the J-statistic, and by analyzing data from Advanced LIGO's second observing run. In the frequency range searched, from 60 to 650 Hz, we find no evidence of gravitational radiation. At 194.6 Hz, the most sensitive search frequency, we report an upper limit on gravitational wave strain (at 95% confidence) of h095%=3.47×10-25 when marginalizing over source inclination angle. This is the most sensitive search for Scorpius X-1, to date, that is specifically designed to be robust in the presence of spin wandering. © 2019 American Physical Society