Is Crop Insurance Creating Welfare Gain in North-east China? How to Improve Policy Implementation?

2019 ◽  
Vol 15 (2) ◽  
pp. 185-197
Author(s):  
Shengyue Le ◽  
Santi Sanglestsawai ◽  
ISriya Nitithanprapas Bunyasiri ◽  
Ravissa Suchato
Keyword(s):  
Utility Theory ◽  
Crop Insurance ◽  
Expected Utility Theory ◽  
Insurance Premium ◽  
Decision Makers ◽  
East China ◽  
Welfare Gain ◽  
Welfare Gains ◽  
North East ◽  
Additional Education

The article evaluates the expected welfare gain from voluntary partial government-subsidized maize insurance in north-east China. A total of 356 maize-growing households’ risk preferences from Linkou County of Heilongjiang province are examined and their expected welfare gains were analysed by the expected utility theory with each farmer’s unique risk preference. The research found that 217 out of 356 households are rational decision-makers and most of them are risk averse. In term of expected welfare gain, the research pointed out that providing the existing crop insurance creates a welfare gain of about CNY 177 per hectare. However, this estimated welfare gain might be reduced to only CNY 124 per hectare if the local government decided to provide 100 per cent insurance premium subsidy with a lower level of protection at the same fiscal budget. Further, the results indicated that about 36 per cent of the rational households made wrong decisions in buying the crop insurance, and households with fewer family members and a lower portion of non-farming income are more likely to make wrong decisions. Additional education may help these farmers to make better decisions and increase future welfare gain to a potential level of about CNY 275 per hectare on average.

scholarly journals Research on Retailer Pricing Based on Extended Regret Theory in E-commerce Environment

2018 ◽  
Author(s):  
Ge Qiu
Keyword(s):  
Utility Theory ◽  
Expected Utility Theory ◽  
Sensitivity Coefficient ◽  
Retail Price ◽  
Decision Makers ◽  
Pricing Strategy ◽  
Optimal Pricing ◽  
Regret Theory ◽  
Sales Channels ◽  
Optimal Pricing Strategy

Based on the Expected Utility Theory and Regret Theory, the Extended Regret Theory (ERT) is proposed in this paper to study the optimal pricing strategy of retailers in e-commerce environment. Taking the diversity of sales channels and the uncertainty of consumers in e-commerce environment into consideration, author of the paper designs an extended regret utility function which comprehensively considers both pessimistic and optimistic attitudes of decision makers in retailing industry to describe their regret-avoidance behavior. According to the sensitivity analysis, it is found that the optimal retail price decreases as the consumer price sensitivity coefficient increases, yet does not show variation with changes of the consumers pessimism degree. Moreover, the optimal retail price(s) obtained under EUT, ERT and combination of EUT and ERT represent the same.

scholarly journals Non-human primates satisfy utility maximization in compliance with the continuity axiom of Expected Utility Theory

2020 ◽  
Author(s):  
Simone Ferrari-Toniolo ◽  
Philipe M. Bujold ◽  
Fabian Grabenhorst ◽  
Raymundo Báez-Mendoza ◽  
Wolfram Schultz
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Utility Maximization ◽  
Expected Utility Theory ◽  
Decision Makers ◽  
Utility Measure ◽  
Trade Off ◽  
Subjective Value ◽  
Subjective Utility ◽  
Continuity Axiom

ABSTRACTExpected Utility Theory (EUT), the first axiomatic theory of risky choice, describes choices as a utility maximization process: decision makers assign a subjective value (utility) to each choice option and choose the one with the highest utility. The continuity axiom, central to EUT and its modifications, is a necessary and sufficient condition for the definition of numerical utilities. The axiom requires decision makers to be indifferent between a gamble and a specific probabilistic combination of a more preferred and a less preferred gamble. While previous studies demonstrated that monkeys choose according to combinations of objective reward magnitude and probability, a concept-driven experimental approach for assessing the axiomatically defined conditions for maximizing subjective utility by animals is missing. We experimentally tested the continuity axiom for a broad class of gamble types in four male rhesus macaque monkeys, showing that their choice behavior complied with the existence of a numerical utility measure as defined by the economic theory. We used the numerical quantity specified in the continuity axiom to characterize subjective preferences in a magnitude-probability space. This mapping highlighted a trade-off relation between reward magnitudes and probabilities, compatible with the existence of a utility function underlying subjective value computation. These results support the existence of a numerical utility function able to describe choices, allowing for the investigation of the neuronal substrates responsible for coding such rigorously defined quantity.SIGNIFICANCE STATEMENTA common assumption of several economic choice theories is that decisions result from the comparison of subjectively assigned values (utilities). This study demonstrated the compliance of monkey behavior with the continuity axiom of Expected Utility Theory, implying a subjective magnitude-probability trade-off relation which supports the existence of numerical subjective utility directly linked to the theoretical economic framework. We determined a numerical utility measure able to describe choices, which can serve as a correlate for the neuronal activity in the quest for brain structures and mechanisms guiding decisions.

Size Doesn't Really Matter

2008 ◽  
Vol 55 (1) ◽  
pp. 31-37 ◽  
Author(s):  
Briony D. Pulford ◽  
Andrew M. Colman
Keyword(s):  
Experimental Investigation ◽  
Expected Utility ◽  
Utility Theory ◽  
Ambiguity Aversion ◽  
Expected Utility Theory ◽  
Decision Makers ◽  
Aversion Effect

Abstract. When attempting to draw a ball of a specified color either from an urn containing 50 red balls and 50 black balls or from an urn containing an unknown ratio of 100 red and black balls, a majority of decision makers prefer the known-risk urn, and this ambiguity aversion effect violates expected utility theory. In an experimental investigation of the effect of urn size on ambiguity aversion, 149 participants showed similar levels of aversion when choosing from urns containing 2, 10, or 100 balls. The occurrence of a substantial and significant ambiguity aversion effect even in the smallest urn suggests that influential theoretical interpretations of ambiguity aversion may need to be reconsidered.

scholarly journals Comment on “Risk Preferences Are Not Time Preferences”: Balancing on a Budget Line

2015 ◽  
Vol 105 (7) ◽  
pp. 2261-2271 ◽  
Author(s):  
Thomas Epper ◽  
Helga Fehr-Duda
Keyword(s):  
Utility Theory ◽  
Expected Utility Theory ◽  
Decision Makers ◽  
Time Preferences ◽  
Probability Weighting ◽  
Portfolio Risk ◽  
Risky Decision ◽  
Recent Experimental Study ◽  
Rank Dependent Utility ◽  
Dependent Probability

In a recent experimental study of intertemporal risky decision making, Andreoni and Sprenger (2012) find that subjects exhibit a preference for intertemporal diversification, which is inconsistent with discounted expected utility theory. It was claimed that their results are also at odds with models involving probability weighting, such as rank-dependent utility and cumulative prospect theory. Here we demonstrate, however, that rank-dependent probability weighting explains intertemporal diversification if decision makers care about portfolio risk. Moreover, we provide a unified account of all of Andreoni and Sprenger's key findings. (JEL C91, D81, D91)

scholarly journals WHEN GAMBLING IS NOT WINNING: EXPLORING OPTIMALITY OF VIX TRADING UNDER THE EXPECTED UTILITY THEORY

2019 ◽  
Vol 1 (1) ◽  
pp. 1-1 ◽  
Author(s):  
Anmar Al Wakil
Keyword(s):  
Risk Aversion ◽  
Portfolio Choice ◽  
Expected Utility ◽  
Risk Premium ◽  
Asset Management ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Insurance Premium ◽  
Ex Post ◽  
Vix Futures

Recently, financial innovations have given rise to complex derivatives within the asset management industry. Although traditional assets pay dividends or coupons, vIX futures contracts have been partly misunderstood by unsophisticated investors, as they only provide portfolio insurance against stock market crashes. Therefore, over the calmer period 2009-2014, the most traded vIX futures exchange-traded product lost practically all of its value, ruining unexperienced investors. hence, this paper investigates appropriateness of these complex derivatives with investor's risk aversion. We address portfolio-choice optimality under uncertainty, for overlay allocations composed of equities, bonds, and vIX futures. This paper proposes a non-trivial solution based on the expected utility theory to simulate investor's behavior with risk aversion. Furthermore, it derives an investor's surprise metric defined as a welfare criterion measure, and a modelimplied risk premium defined as the insurance premium investor pays ex post to hedge. Empirical results show investing in vIX futures significantly beats traditionally diversified portfolios, but they turn to be particularly inappropriate for risk-loving investors. From the asset management perspective, this paper has practical implications since it recommends pedagogical efforts to raise investors' awareness of overlay strategies.

Costs of abandoning the Sure-Thing Principle

2015 ◽  
Vol 45 (5-6) ◽  
pp. 827-840 ◽  
Author(s):  
Rachael Briggs
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Decision Makers ◽  
Sequential Choice ◽  
The World ◽  
Sure Thing Principle

Risk-weighted expected utility theory (REU theory for short) permits preferences which violate the Sure-Thing Principle (STP for short). But preferences that violate the STP can lead to bad decisions in sequential choice problems. In particular, they can lead decision-makers to adopt a strategy that is dominated – i.e. a strategy such that some available alternative leads to a better outcome in every possible state of the world.

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