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093055 (E12) The impact of incentives upon risky choice experiments
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Abstracts and Reviews
Uncertainty, Volume 14, Number 1, 1997, pp. 41-61. Three reasons for why people may evaluate utility in a rank-dependent fashion have been suggested: (a) rank-dependent weighting is a function of perceptual biases and thus not prescriptively defensible; (b) weights are (re)distributed by motivational processes that reflect stable personality characteristics of the decision maker;and (c) weights are (re)distributed as a function of the situation, allowing rank-dependent evaluation to be a rational response to an environment with asymmetric loss functions. By modifying a study by Wakker, Erev, and Weber (1994) we show that all three processes-that is, perceptual biases, individual predispositions in weighting, as well as rational adaptation to an asymmetric loss function-can be involved in rank-dependent weighting.
Keywords : Comonotonic independence, Expected Utility, Independence, Preference Reversals, rank-dependent utility. 093053 (El2) An Experimental Test of a General Class of Utility Models:Evidence for Context Dependency Chechile R.A., Cooke A.D.J., Journal of Risk and
Uncertainty, Volume 14, Number 1, 1997, pp. 75-93. Generic utility theory, a general axiomatization of utility principles developed by Miyamoto (1988,1992), is discussed as a formulation that captures a large class of utility theories. Several general mathematical functions were used to specify further the scaling of utility theories. Several general mathematical functions were used to specify further the scaling of utility within this class of models. The scaling parameters in the generic utility representation should remain invariant across gambling contexts, and this predicted invariance provided a means for testing the theory. Evidence is presented that the prediction of scaling-parameters invariance is violated. This failure is interpreted as a consequence of employing an absolute reference system for a problem that is context-sensitive.
Keywords: Generic utility theory, Subjective equivalence of gambles, Context-dependent utility scaling.
one can calculate an easy and exact measurement of their risk-correctedtotal return per period by use of an appropriate "power mean": the Geometric Mean when U=iog Wealth; the Harmonic Mean when U=-W~I..; and the general (F,pyWjY)l/Ymean when U=WY/y, l>y~0. This subjective risk-corrected return compounds over multiple periods formally the way money returns compound: 1 + rt, (1 + r 0, (1 + rE). . . . . IITl(1 + rt).For them, this approach can dramatize the inefficiency of being (say) half the time in each of two independent and identically distributed securities; 100% is then lost of the benefit from being all the time 50-50 in each; actually, being half the time in each is as bad as being all the time in either one, which is equivalent to being completely undiversified. More generally, there is proved here that, for any risk-averse U(W) and time-independent probabilities, optimal diversification. The variety of proposed risk-corrected returns can give useful approximations for different classes of investors widows and orphans, pension fiduciaries, high-flying plungers, and so forth- to replace or extend Markowitz, Sharpe, Treynor, or Modigliani-Modigliani measures of corrected performance.
Keywords: Certainty diversifications.
equivalents,
Risk-corrected
093055 (El2) The Impact of Incentives Upon Risky Choice Experiments Beattie J., Loomes G., Journal of Risk and Uncertainty,
Volume 14, Number 2, 1997,155-168. Much of the evidence raising doubts about expected utility theory (EUT) comes from experiments involving hypothetical decisions. Most of the rest of the evidence comes from experiments where respondents are asked to make a large number of decisions, knowing that only one of these will provide the basis for payment. Concerns have often been expressed about the" realness" of such data, and their reliability as a basis for criticizing EUT and promoting alternative theories. The present article reviews this debate and reports new experimental results that directly address this issue.
Keywords: Choice, Experiments, Incentives, Risk. 093054 (El2) Proof by Certainty Equivalents that DiversificationAcross-Time Does Worse Risk Corrected Than Diversification-Throughout-Time Samuelson P.A., Journal of Risk and Uncertainty,
Volume 14, Number 2, 1997,129-142. For those with constant relative-risk-aversion,
093056 (El2) Dynamically Consistent Preferences with Quadratic Beliefs Eichberger J., Grant S., Journal of Risk and
Uncertainty, Volume 14, Number 2, 1997,189-207. This article characterizes a family of preference
Abstracts and Reviews
Uncertainty, Volume 14, Number 1, 1997, pp. 41-61. Three reasons for why people may evaluate utility in a rank-dependent fashion have been suggested: (a) rank-dependent weighting is a function of perceptual biases and thus not prescriptively defensible; (b) weights are (re)distributed by motivational processes that reflect stable personality characteristics of the decision maker;and (c) weights are (re)distributed as a function of the situation, allowing rank-dependent evaluation to be a rational response to an environment with asymmetric loss functions. By modifying a study by Wakker, Erev, and Weber (1994) we show that all three processes-that is, perceptual biases, individual predispositions in weighting, as well as rational adaptation to an asymmetric loss function-can be involved in rank-dependent weighting.
Keywords : Comonotonic independence, Expected Utility, Independence, Preference Reversals, rank-dependent utility. 093053 (El2) An Experimental Test of a General Class of Utility Models:Evidence for Context Dependency Chechile R.A., Cooke A.D.J., Journal of Risk and
Uncertainty, Volume 14, Number 1, 1997, pp. 75-93. Generic utility theory, a general axiomatization of utility principles developed by Miyamoto (1988,1992), is discussed as a formulation that captures a large class of utility theories. Several general mathematical functions were used to specify further the scaling of utility theories. Several general mathematical functions were used to specify further the scaling of utility within this class of models. The scaling parameters in the generic utility representation should remain invariant across gambling contexts, and this predicted invariance provided a means for testing the theory. Evidence is presented that the prediction of scaling-parameters invariance is violated. This failure is interpreted as a consequence of employing an absolute reference system for a problem that is context-sensitive.
Keywords: Generic utility theory, Subjective equivalence of gambles, Context-dependent utility scaling.
one can calculate an easy and exact measurement of their risk-correctedtotal return per period by use of an appropriate "power mean": the Geometric Mean when U=iog Wealth; the Harmonic Mean when U=-W~I..; and the general (F,pyWjY)l/Ymean when U=WY/y, l>y~0. This subjective risk-corrected return compounds over multiple periods formally the way money returns compound: 1 + rt, (1 + r 0, (1 + rE). . . . . IITl(1 + rt).For them, this approach can dramatize the inefficiency of being (say) half the time in each of two independent and identically distributed securities; 100% is then lost of the benefit from being all the time 50-50 in each; actually, being half the time in each is as bad as being all the time in either one, which is equivalent to being completely undiversified. More generally, there is proved here that, for any risk-averse U(W) and time-independent probabilities, optimal diversification. The variety of proposed risk-corrected returns can give useful approximations for different classes of investors widows and orphans, pension fiduciaries, high-flying plungers, and so forth- to replace or extend Markowitz, Sharpe, Treynor, or Modigliani-Modigliani measures of corrected performance.
Keywords: Certainty diversifications.
equivalents,
Risk-corrected
093055 (El2) The Impact of Incentives Upon Risky Choice Experiments Beattie J., Loomes G., Journal of Risk and Uncertainty,
Volume 14, Number 2, 1997,155-168. Much of the evidence raising doubts about expected utility theory (EUT) comes from experiments involving hypothetical decisions. Most of the rest of the evidence comes from experiments where respondents are asked to make a large number of decisions, knowing that only one of these will provide the basis for payment. Concerns have often been expressed about the" realness" of such data, and their reliability as a basis for criticizing EUT and promoting alternative theories. The present article reviews this debate and reports new experimental results that directly address this issue.
Keywords: Choice, Experiments, Incentives, Risk. 093054 (El2) Proof by Certainty Equivalents that DiversificationAcross-Time Does Worse Risk Corrected Than Diversification-Throughout-Time Samuelson P.A., Journal of Risk and Uncertainty,
Volume 14, Number 2, 1997,129-142. For those with constant relative-risk-aversion,
093056 (El2) Dynamically Consistent Preferences with Quadratic Beliefs Eichberger J., Grant S., Journal of Risk and
Uncertainty, Volume 14, Number 2, 1997,189-207. This article characterizes a family of preference