ADVANCE TAX PAYMENT AND TAX EVASION: EXPECTED UTILITY ANALYSIS

2014 ◽  
Vol 59 (02) ◽  
pp. 1450014 ◽  
Author(s):  
KEISUKE MORITA
Keyword(s):  
Theoretical Analysis ◽  
Prospect Theory ◽  
Expected Utility ◽  
Tax Evasion ◽  
Utility Theory ◽  
Empirical Finding ◽  
Expected Utility Theory ◽  
Utility Analysis ◽  
Tax Rate ◽  
Tax Payments

The traditional theoretical analysis of tax evasion fails to explain the empirical finding that declared income decreases with the tax rate. We show that one of the reasons for this result is that many such studies overlook advance tax payments in their analyses. Furthermore, we investigate how advance tax payments influence the extent of tax evasion. We conclude that the influence of advance tax payments on the extent of tax evasion depends on whether an individual's preference is based on expected utility theory or prospect theory.

scholarly journals Cumulative Prospect Theory Version with Fuzzy Values of Outcome Estimates

Risks ◽  
2021 ◽  
Vol 9 (4) ◽  
pp. 72
Author(s):  
Oleg Uzhga-Rebrov ◽  
Peter Grabusts
Keyword(s):  
Prospect Theory ◽  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Cumulative Prospect Theory ◽  
Development History ◽  
Decisions Under Risk ◽  
History Of ◽  
Main Factors ◽  
Theoretical Foundations

Choosing solutions under risk and uncertainty requires the consideration of several factors. One of the main factors in choosing a solution is modeling the decision maker’s attitude to risk. The expected utility theory was the first approach that allowed to correctly model various nuances of the attitude to risk. Further research in this area has led to the emergence of even more effective approaches to solving this problem. Currently, the most developed theory of choice with respect to decisions under risk conditions is the cumulative prospect theory. This paper presents the development history of various extensions of the original expected utility theory, and the analysis of the main properties of the cumulative prospect theory. The main result of this work is a fuzzy version of the prospect theory, which allows handling fuzzy values of the decisions (prospects). The paper presents the theoretical foundations of the proposed version, an illustrative practical example, and conclusions based on the results obtained.

Conventions, Operations, Predictions

2018 ◽  
pp. 193-214
Author(s):  
Ivan Moscati
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Choice Behavior ◽  
Expected Utility Theory ◽  
The Novel ◽  
Utility Analysis ◽  
Utility Measurement ◽  
The Third ◽  
Third Phase ◽  
Ordinal Utility

Chapter 12 analyzes the third phase of the debate on expected utility theory, from the end of 1952 to 1955. The issues concerning the nature of utility measurement gained an autonomous status in this phase. Milton Friedman, Leonard J. Savage, Robert Strotz, Armen Alchian, and Daniel Ellsberg argued that measuring utility consists of assigning numbers to objects by following a definite set of operations. While the particular way of assigning utility numbers to objects is largely arbitrary and conventional, the assigned numbers should allow economists to predict individuals’ choice behavior. This is similar to the operational conception advanced by psychologist Stanley Smith Stevens and definitively liberates utility measurement from its remaining ties with units and ratios. The novel view of measurement quickly became standard among mainstream utility theorists, and its success helps explain the peaceful cohabitation of cardinal and ordinal utility within utility analysis that began in the mid-1950s.

scholarly journals An Experimental Comparison of Risky and Riskless Choice—Limitations of Prospect Theory and Expected Utility Theory

2019 ◽  
Vol 11 (3) ◽  
pp. 34-67 ◽  
Author(s):  
Hui-Kuan Chung ◽  
Paul Glimcher ◽  
Agnieszka Tymula
Keyword(s):  
Prospect Theory ◽  
Empirical Evidence ◽  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Experimental Comparison ◽  
Reference Dependence ◽  
Empirical Results ◽  
Incentive Compatible ◽  
Gain Loss

Prospect theory, used descriptively for decisions under both risk and certainty, presumes concave utility over gains and convex utility over losses; a pattern widely seen in lottery tasks. Although such discontinuous gain-loss reference-dependence is also used to model riskless choices, only limited empirical evidence supports this use. In incentive-compatible experiments, we find that gain-loss reflection effects are not observed under riskless choice as predicted by prospect theory, even while in the same subjects gain-loss reflection effects are observed under risk. Our empirical results challenge the application of choice models across both risky and riskless domains. (JEL C91, D12, D81)

Contrasting Rational and Psychological Analyses of Political Choice

1988 ◽  
Vol 82 (3) ◽  
pp. 719-736 ◽  
Author(s):  
George A. Quattrone ◽  
Amos Tversky
Keyword(s):  
Risk Aversion ◽  
Prospect Theory ◽  
Expected Utility ◽  
Reference Point ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Risky Choice ◽  
Political Candidates ◽  
Risk Seeking ◽  
Psychological Analysis

We contrast the rational theory of choice in the form of expected utility theory with descriptive psychological analysis in the form of prospect theory, using problems involving the choice between political candidates and public referendum issues. The results showed that the assumptions underlying the classical theory of risky choice are systematically violated in the manner predicted by prospect theory. In particular, our respondents exhibited risk aversion in the domain of gains, risk seeking in the domain of losses, and a greater sensitivity to losses than to gains. This is consistent with the advantage of the incumbent under normal conditions and the potential advantage of the challenger in bad times. The results further show how a shift in the reference point could lead to reversals of preferences in the evaluation of political and economic options, contrary to the assumption of invariance. Finally, we contrast the normative and descriptive analyses of uncertainty in choice and address the rationality of voting.

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