Present Bias

Econometrica ◽  
2021 ◽  
Vol 89 (4) ◽  
pp. 1921-1961
Author(s):  
Anujit Chakraborty
Keyword(s):  
Decision Maker ◽  
General Class ◽  
Utility Functions ◽  
Present Bias ◽  
The Face ◽  
Exponential Discounting

Present bias is the inclination to prefer a smaller present reward to a larger later reward, but reversing this preference when both rewards are equally delayed. Such behavior violates stationarity of temporal choices, and hence exponential discounting. This paper provides a weakening of the stationarity axiom that can accommodate present‐biased choice reversals. We call this new behavioral postulate Weak Present Bias and characterize the general class of utility functions that is consistent with it. We show that present‐biased preferences can be represented as those of a decision maker who makes her choices according to conservative present‐equivalents, in the face of uncertainty about future tastes.

Bounded, Sigmoid Utility for Insurance Applications

2017 ◽  
Vol 11 (1) ◽  
Author(s):  
Siwei Gao ◽  
Michael R. Powers
Keyword(s):  
Decision Maker ◽  
Utility Functions ◽  
Decision Makers ◽  
Logical Necessity ◽  
Empirical Observation ◽  
Von Neumann ◽  
Bid Price ◽  
Bounded Below ◽  
Petersburg Paradox ◽  
Actual Decision

AbstractApplying a well-known argument of Karl Menger to an insurance version of the St. Petersburg Paradox (in which the decision maker is confronted with losses, rather than gains), one can assert that von Neumann-Morgenstern utility functions are necessarily concave upward and bounded below as decision-maker wealth tends to negative infinity. However, this argument is subject to two potential criticisms: (1) infinite-mean losses do not exist in the real world; and (2) the St. Petersburg Paradox derives its force from empirical observation (i. e., that actual decision makers would not agree to an arbitrarily large insurance bid price to transfer an infinite-mean loss), and thus does not impart logical necessity. In the present article, these two criticisms are addressed in turn. We first show that, although infinite-mean insurance losses technically do not exist, they do provide a reasonable model for certain large (i. e., excess and reinsurance) property-liability indemnities. We then employ the Two-Envelope Paradox to demonstrate the logical necessity of concave-upward, lower-bounded utility for arbitrarily small (i. e., negative) values of wealth. Finally, we note that recognizing the bounded, sigmoid nature of utility functions challenges certain fundamental understandings in the economics of insurance demand, and can lead to vastly different conclusions regarding the bid price for insurance.

scholarly journals Adaptación del sistema táctico de inteligencia para la toma de decisiones militares ante una pandemia

2021 ◽  
Vol 12 (26) ◽  
pp. 14-22
Author(s):  
Eider Yovanny Vargas
Keyword(s):  
Mathematical Model ◽  
Decision Maker ◽  
Administrative Support ◽  
Decision Makers ◽  
Rapid Adaptation ◽  
Process Data ◽  
The Face ◽  
Toma De Decisiones ◽  
The Military ◽  
Available Resources

The purpose of this work is to identify a tool that allows a military decision maker at the tactical level to manage the military resources available in the event of a pandemic. The research focused on finding and adapting an epidemiological mathematical model to process data collected in a military jurisdiction and with it the development of prospective scenarios in a military jurisdiction in the event of a pandemic. The results indicate that in the face of a pandemic, military decision makers must have a model of prospective scenarios and the adaptation of the intelligence process, especially the means of searching for information and the recording and analysis instruments to diligently manage the available resources. It is concluded that, given the appearance of a pandemic in a place with geographical conditions that hinder rapid accessibility and administrative support, military decision makers require a procedure that allows rapid adaptation to the new tactical scenario.

scholarly journals Judicial oversight as a form of governance in the face of administration arbitrariness in administrative decisions

2021 ◽  
Vol 10 (4, special issue) ◽  
pp. 261-271
Author(s):  
Faisal Abdulhafez Alshawabkeh ◽  
Tayil Mahmoud Shiyab
Keyword(s):  
Decision Maker ◽  
Good Governance ◽  
Discretionary Power ◽  
Abuse Of Power ◽  
Judicial Control ◽  
The Third ◽  
Analytic Methods ◽  
The Face ◽  
Administrative Jurisdiction

This research explains judicial control as a form of governance in the face of arbitrary administrative decisions — the UAE is an example (Zwart, 2016). The aim of the study is to demonstrate how judicial control can contribute to achieving good governance of the administrative decisions in the absence of the legislative provisions related to the causes of cancellation of an administrative decision. The data were sourced from relevant books, journals, official texts, and courts decisions. The data obtained was analysed through descriptive and analytic methods. This paper is divided into three themes. The first tackles the incidents of abuse of power. The second demonstrates the ways in which abuses of power can be proved, and the third discusses the correlation between judicial control and good governance. The study found that the abuse of power is related to the discretionary power of the administration and that it is a latent defect related to the psychological intentions of the decision-maker and is difficult to prove, also that the administrative jurisdiction plays an important role in promoting the good governance. The study concluded that it is important for the UAE legislator to issue a law regulating the action for the annulment of administrative decisions.

scholarly journals The Relation between Behavior under Risk and over Time

2020 ◽  
Vol 2 (1) ◽  
pp. 1-16 ◽  
Author(s):  
Anujit Chakraborty ◽  
Yoram Halevy ◽  
Kota Saito
Keyword(s):  
Decision Maker ◽  
Expected Utility ◽  
Ratio Effect ◽  
Present Bias ◽  
Common Ratio ◽  
Future Consumption ◽  
The Common ◽  
Utility Preferences ◽  
Common Ratio Effect ◽  
Over Time

The paper establishes a tight relation between nonstandard behaviors in the domains of risk and time, by considering a decision-maker with non-expected utility preferences who believes that only present consumption is certain while any future consumption is uncertain. We provide the first complete characterizations of the two-way relations between the certainty effect and present bias, and between the common ratio effect and temporal reversals. (JEL D11, D15, D81, D91)

Decision-Based Design Using Time-Varying Preferences Represented by Stochastic Processes

2012 ◽  
Author(s):  
Vijitashwa Pandey ◽  
Zissimos P. Mourelatos
Keyword(s):  
Stochastic Processes ◽  
Decision Maker ◽  
Design Process ◽  
Utility Functions ◽  
Options Pricing ◽  
Time Varying ◽  
Engineering Systems ◽  
Black Scholes ◽  
A Cell ◽  
Decision Based Design

Soliciting and expressing the preferences of a decision maker in engineering design is critical. In general, the preferences vary through time, complicating the design of engineering systems. In this article, we propose that if parameterized utility functions are used to model the preferences, the time-varying characteristics of the parameters can provide valuable information on the likely decisions the decision maker can make at a future time. To model the time-dependent uncertainty in preferences, we use parameterized utility functions with the parameters characterized by stochastic processes and demonstrate how the design process is affected by stationarity properties of the random parameters. We work in the normative utility theoretic domain and show a property of the multiplicative utility function that allows us to use the common Black-Scholes-Merton options pricing model from finance, to account for variability in preferences with time. Finally, we discuss how to modify the design process so that optimal products are ready when there is a future need for them. The applicability of our approach is demonstrated using a cell phone example.

Decision Integrity and Second Order Cybernetics

2010 ◽  
pp. 52-74 ◽  
Author(s):  
Anthony Hodgson
Keyword(s):  
Decision Making ◽  
Decision Maker ◽  
Public Affairs ◽  
Unintended Consequences ◽  
Second Order ◽  
Ethical Considerations ◽  
Critical Areas ◽  
Ultimate Responsibility ◽  
The Face ◽  
Global World

The rational worldview of management science has come to dominate decision theory. This chapter proposes that, despite its evident successes, this view of decision making is decreasingly effective in a global world which turns out to be unruly and unpredictable in critical areas. The result is an escalation of unintended consequences in business, public affairs and human ecology. Despite its success in some fields of management, we need to question the rational view which disconnects the observer from the observed. Decision integrity is proposed as a reflexive theory of decision making that incorporates the decision maker as part of the decision field. It requires stepping out of the observer/object paradigm of classical science and into the alternative paradigm of second order cybernetics. The decision maker is not simply an observer but also a participant who cannot abdicate from personal ethical considerations and ultimate responsibility even in the face of uncertainty.

Information and Decisionmaking at the Federal Trade Commission

1992 ◽  
Vol 11 (2) ◽  
pp. 1-11 ◽  
Author(s):  
Dennis A. Yao ◽  
Christa Van Anh Vecchi
Keyword(s):  
Decision Maker ◽  
Federal Trade Commission ◽  
Trade Mark ◽  
Federal Courts ◽  
Statistical Evidence ◽  
Central Issue ◽  
Legal Standard ◽  
The Face ◽  
The Mean ◽  
False Claim

Ad interpretation is a central issue in nearly every false advertising case before both the Federal Trade Commission and the federal courts (under the Lanham Trade-Mark Act). Part of ad interpretation is the ancillary issue of whether to require extrinsic evidence supporting a disputed interpretation, particularly where the false claim alleged to be made is implicitly rather than explicitly stated. The authors first discuss the legal standard concerning when extrinsic evidence is required. Though the FTC and most federal courts apply different standards in requiring extrinsic proof of an ad's meaning, some federal courts appear to be moving toward the FTC's standard—namely, that extrinsic proof is required only for those implied claims that the decision maker cannot himself interpret with confidence from the face of the ad itself. The authors then use a Bayesian decisionmaking perspective to examine the implementation of the FTC's legal standard. This perspective leads to the conclusion that measures of variability will often be as important to decisionmaking as the mean estimate provided in statistical evidence.

scholarly journals Rationalizations and Mistakes: Optimal Policy with Normative Ambiguity

2018 ◽  
Vol 108 ◽  
pp. 98-102 ◽  
Author(s):  
Jacob Goldin ◽  
Daniel Reck
Keyword(s):  
Decision Maker ◽  
Health Plan ◽  
Optimal Policy ◽  
Utility Functions ◽  
Welfare Loss ◽  
Decision Makers ◽  
Social Programs ◽  
Default Options ◽  
Tax Salience ◽  
Plan Selection

Behavior that appears to violate neoclassical assumptions can often be rationalized by incorporating an optimization cost into decision-makers' utility functions. Depending on the setting, these costs may reflect either an actual welfare loss for the decision-maker who incurs them or a convenient (but welfare irrelevant) modeling device. We consider how the resolution of this normative ambiguity shapes optimal policy in a number of contexts, including default options, inertia in health plan selection, take-up of social programs, programs that encourage moving to a new neighborhood, and tax salience.

Optimal Income Taxation with Present Bias

2020 ◽  
Vol 12 (4) ◽  
pp. 298-327
Author(s):  
Benjamin B. Lockwood
Keyword(s):  
Income Tax ◽  
Tax Rates ◽  
Optimal Income Taxation ◽  
Earned Income ◽  
Present Bias ◽  
Optimal Tax ◽  
Multiple Dimensions ◽  
Low Incomes ◽  
Marginal Tax Rates ◽  
The Face

Work often entails up-front effort costs in exchange for delayed benefits, and mounting evidence documents present bias over effort in the face of such delays. This paper studies the implications for the optimal income tax. Optimal tax rates are computed for present-biased workers who choose multiple dimensions of labor effort, some of which occur prior to compensation. Present bias reduces optimal tax rates, with a larger effect when the elasticity of taxable income is high. Optimal marginal tax rates may be negative at low incomes, providing an alternative, corrective rationale for work subsidies like the Earned Income Tax Credit. (JEL D91, H21, H24)

scholarly journals The Scheduling Decision of a Refinery: The Decision Maker in Search of Conflict Resolution

2015 ◽  
Vol 3 (1) ◽  
pp. 36
Author(s):  
Thais Spiegel ◽  
Heitor Mansur Caulliraux
Keyword(s):  
Decision Making ◽  
Conflict Resolution ◽  
Decision Maker ◽  
Comprehensive Evaluation ◽  
Refining Process ◽  
Decision Makers ◽  
Hierarchical Decision ◽  
The Face ◽  
Decision Making Processes ◽  
Oil Company

Refineries typically gather a set of activities that are complex and dynamic. Adding to the complexity of the refining process, there is also great freedom in refinery operations, multiple possible arrangements to convert certain oils in derivatives. In this context, this paper focuses on the decision-making processes that lead refiners of an integrated oil company in their day to day. As decision making, the text refers to a process that always brings a kind of conflict resolution, in which conflicting goals have to be negotiated and reconciled. The object of analysis is inserted in hierarchical decision-making processes, e.g. a breakdown process, which begins with a comprehensive evaluation and then divides the decision into ever smaller and more defined elements so that they are interdependent. The output at an aggregated level is then input in the next detailed level. In each of the hierarchical levels, the decision-making is the result of a problem presented in a certain context to a decision maker. This decision maker will be responsible for the direction of the refinery production in which he/she is allocated. The programmer of each refinery have general guidelines that should be considered, albeit non-explicitly or non-definable way, these take the form of criteria in some cases of technical origin and in other situations derived from the business. Given these aspects, this article presents a critical and analytical view in the face of dilemmas that emerge before the search of the decision makers to converge scheduling production considering both set of criteria.

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