scholarly journals Modeling Choice Paradoxes Under Risk: From Prospect Theories to Sampling-Based Accounts

2019 ◽  
Author(s):  
David Kellen ◽  
Markus Steiner ◽  
Clintin Davis-Stober ◽  
Nicholas Pappas
Keyword(s):  
Utility Theory ◽  
Model Comparison ◽  
Expected Utility Theory ◽  
Large Set ◽  
Choice Data ◽  
Alternative Models ◽  
Decision Field Theory ◽  
Comparison Results ◽  
Form Model ◽  
Gains And Losses

Important developments in the study of decision making have been based on theestablishment and testing of choice paradoxes (e.g., Allais’) that reject different theories (e.g., Expected Utility Theory). One of the most popular and celebrated models in the literature, Cumulative Prospect Theory (CPT), has managed to retain its status despite a growing body of empirical evidence stemming from a collection of choice paradoxes that reject it. Two alternative models, Transfer of Attention Exchange (TAX) and an extension of Decision Field Theory (DFTe), have been proposed as possible alternatives to CPT. To date, no study has directly compared these three models within the context of a large set of lottery problems that tests different choice paradoxes. The present study accomplishes this by using a large and diverse set of lottery problems, involving both potential gains and losses. Our results support the presence and robustness of a set of ‘strong’ choice paradoxes that reject CPT irrespective of its parametric form. Model comparison results show that DFTe provides the best account for the present set of lottery problems, as it is able to accommodate the choice data at large in a parsimonious fashion. The success of DFTe shows that many behavioral phenomena, including paradoxes that CPT cannot account for, can be successfully captured by a simple noisy-sampling process. Overall, our results suggest that researchers should move away from CPT, and focus their efforts on alternative models such as DFTe.

scholarly journals Psychological parameters have units: A bug fix for stochastic prospect theory and other decision models

2018 ◽  
Author(s):  
Neil Stewart ◽  
Benjamin Scheibehenne ◽  
Thorsten Pachur
Keyword(s):  
Risk Aversion ◽  
Prospect Theory ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Decision Models ◽  
Strongly Correlated ◽  
Choice Data ◽  
Physical Sciences ◽  
Parameter Measuring ◽  
Choice Probabilities

To fit models like prospect theory or expected utility theory to choice data, a stochastic model is needed to turn differences in values into choice probabilities. In these models, the parameter measuring risk aversion is strongly correlated with the parameter measuring the sensitivity to differences in value. We use dimensional analysis from the physical sciences to show that this is because the sensitivity parameter has units which depend on the risk aversion parameter. This means that comparing sensitivities across individuals with different level of risk aversion is meaningless and forbidden. We suggest a simple bug fix for prospect theory and other decision models which corrects this problem. The bug fix completely removes the correlation between sensitivity and risk aversion parameters in model estimations and allows the parameters to be interpreted as they were originally intended.

scholarly journals UNACCEPTABLE RISKS AND THE CONTINUITY AXIOM

2012 ◽  
Vol 28 (1) ◽  
pp. 31-42 ◽  
Author(s):  
Karsten Klint Jensen
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Extreme Case ◽  
Expected Utility Theory ◽  
Alternative Proof ◽  
Ordinal Ranking ◽  
Gains And Losses ◽  
Continuity Axiom

Consider a sequence of outcomes of descending value, A > B > C > . . . > Z. According to Larry Temkin, there are reasons to deny the continuity axiom in certain ‘extreme’ cases, i.e. cases of triplets of outcomes A, B and Z, where A and B differ little in value, but B and Z differ greatly. But, Temkin argues, if we assume continuity for ‘easy’ cases, i.e. cases where the loss is small, we can derive continuity for the ‘extreme’ case by applying the axiom of substitution and the axiom of transitivity. The rejection of continuity for ‘extreme’ cases therefore renders the triad of continuity in ‘easy’ cases, the axiom of substitution and the axiom of transitivity inconsistent.As shown by Arrhenius and Rabinowitz, Temkin's argument is flawed. I present a result which is stronger than their alternative proof of an inconsistency. However, this result is not quite what Temkin intends, because it only refers to an ordinal ranking of the outcomes in the sequence, whereas Temkin appeals to intuitions about the size of gains and losses. Against this background, it is argued that Temkin's trilemma never gets off the ground. This is because Temkin appeals to two mutually inconsistent conceptions of aggregation of value. Once these are clearly separated, it will transpire, in connection with each of them, that one of the principles to be rejected does not appear plausible. Hence, there is nothing surprising or challenging about the result; it is merely a corollary to Expected Utility Theory.

scholarly journals Agriculture Model Comparison Framework and MyGeoHub Hosting: Case of Soil Nitrogen

Inventions ◽  
2021 ◽  
Vol 6 (2) ◽  
pp. 25
Author(s):  
Anupam Bhar ◽  
Benjamin Feddersen ◽  
Robert Malone ◽  
Ratnesh Kumar
Keyword(s):  
Soil Nitrogen ◽  
Field Data ◽  
Model Comparison ◽  
Test Model ◽  
Soil N ◽  
N Dynamics ◽  
Benchmark Model ◽  
C Dynamics ◽  
Comparison Results ◽  
Speed Up

To be able to compare many agricultural models, a general framework for model comparison when field data may limit direct comparison of models is proposed, developed, and also demonstrated. The framework first calibrates the benchmark model against the field data, and next it calibrates the test model against the data generated by the calibrated benchmark model. The framework is validated for the modeling of the soil nutrient nitrogen (N), a critical component in the overall agriculture system modeling effort. The nitrogen dynamics and related carbon (C) dynamics, as captured in advanced agricultural modeling such as RZWQM, are highly complex, involving numerous states (pools) and parameters. Calibrating many parameters requires more time and data to avoid underfitting. The execution time of a complex model is higher as well. A study of tradeoff among modeling complexities vs. speed-up, and the corresponding impact on modeling accuracy, is desirable. This paper surveys soil nitrogen models and lists those by their complexity in terms of the number of parameters, and C-N pools. This paper also examines a lean soil N and C dynamics model and compares it with an advanced model, RZWQM. Since nitrate and ammonia are not directly measured in this study, we first calibrate RZWQM using the available data from an experimental field in Greeley, CO, and next use the daily nitrate and ammonia data generated from RZWQM as ground truth, against which the lean model’s N dynamics parameters are calibrated. In both cases, the crop growth was removed to zero out the plant uptake, to compare only the soil N-dynamics. The comparison results showed good accuracy with a coefficient of determination (R2) match of 0.99 and 0.62 for nitrate and ammonia, respectively, while affording significant speed-up in simulation time. The lean model is also hosted in MyGeoHub cyberinfrastructure for universal online access.

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.

Norm-Endorsement Utilitarianism and the Nature of Utility

1996 ◽  
Vol 12 (2) ◽  
pp. 165-182 ◽  
Author(s):  
Jonathan Baron
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Interpersonal Comparison ◽  
Moral Norms ◽  
Moral Principles ◽  
Future Goals ◽  
Equal Consideration

In this article, I shall suggest an approach to the justification of normative moral principles which leads, I think, to utilitarianism. The approach is based on asking what moral norms we would each endorse if we had no prior moral commitments. I argue that we would endorse norms that lead to the satisfaction of all our nonmoral values or goals. The same approach leads to a view of utility as consisting of those goals that we would want satisfied. In the second half of the article, I examine the implication of this view for several issues about the nature of utility, such as the use of past and future goals. The argument for utilitarianism is not completed here. The rest of it requires a defense of expected-utility theory, of interpersonal comparison, and of equal consideration (see Baron, 1993; Broome, 1991).

The design of pension contracts: on the perspective of customers

2018 ◽  
Vol 13 (2) ◽  
pp. 219-240 ◽  
Author(s):  
Zhaoxun Mei
Keyword(s):  
Young People ◽  
Utility Theory ◽  
Asset Price ◽  
Expected Utility Theory ◽  
Cumulative Prospect Theory ◽  
The Other ◽  
Risky Assets ◽  
Distribution Rule ◽  
Similar Product ◽  
Guarantee Rate

AbstractThis paper introduces a new pension contract which provides a smoothed return for the customer. The new contract protects customers from adverse asset price movements while keeping the potential of positive returns. It has a transparent structure and clear distribution rule, which can be easily understood by the customer. We compare the new contract to two other contracts under Cumulative Prospect Theory (CPT); one has a similar product structure but without guarantees and the other provides the same guarantee rate but with a different structure. The results show that the new contract is the most attractive contract for a CPT-maximising customer. Yet, we find different results if we let the customer be an Expected Utility Theory-maximising one. Moreover, this paper presents the static optimal portfolio for an individual customer. The results conform to the traditional pension advice that young people should invest more of their money in risky assets while older people should put more money in less risky assets.

Housing Market Search Behavior and Expected Utility Theory: 1. Measuring Preferences for Housing

1982 ◽  
Vol 14 (5) ◽  
pp. 681-698 ◽  
Author(s):  
T R Smith ◽  
W A V Clark
Keyword(s):  
Los Angeles ◽  
Housing Market ◽  
Expected Utility ◽  
Utility Theory ◽  
House Price ◽  
Expected Utility Theory ◽  
Utility Functions ◽  
Future Search ◽  
Space Construction ◽  
Market Search

This is the first of two papers examining housing market search in a Los Angeles market. In this paper, we derive and analyze utility functions for housing for each individual in two groups of subjects. The utility functions are derived from an experimental setting, in which house price, floor space, construction quality, and neighborhood quality are varied. The functions are found to be essentially compatible with a linear model. They are used to predict the ratings of real houses and the ratings of the expected value of future search. These ratings are compared with actual ratings obtained from subjects during search. The results suggest that the actual or predicted ratings may be employed in a direct test of a simple expected utility theory of search, and further research along these lines appears justified.

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