krainaksiazek revealed preference theory 20131363
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Książki Obcojęzyczne>Angielskie>Economics, finance, business & management>Economics>Econometrics
This Book Examines Situations In Which Empirical Observations Are Consistent Or Inconsistent With Some Of The Best Known Economic Theories.
Książki / Literatura obcojęzyczna
Inhaltsangabe:Introduction: Economic theory normally focuses on rational agents optimizing individual utility. Since the second half of the 20th century, this viewpoint has been enriched by findings from the field of psychology. A new trait of research was created called żbehavioral economicsż. It takes into account subjective characteristics such as asymmetric preference and judgment, or limits of rational processing, willpower, and greed. This paper aims to give an overview of two related human traits that have attracted particularly wide interest, namely overconfidence and overoptimism. The two are closely related to each other, and often used synonymously. Broadly speaking, overconfidence results in underestimation of future risks, e.g. the riskiness of future cash flows, whilst overoptimism leads to an overestimation of future positive outcomes, e.g. the future returns of a company. Besides, the paper wants to deduct suggestions for further research, by systematically identifying uncovered topics in existing literature. Usually Alpert and Raiffa are credited with the first discovery of overconfidence. However, the most influential study is probably Russo and Schoemaker. It was published in the Sloan Management Review and communicated the topic to a broader audience for the first time. In particular, it revealed that assumingly rational managers were prone to overconfidence, too. This challenged traditional management doctrines and generated interest in a better understanding of the topic and further research. To exemplify overconfidence, Russo and Schoemaker asked managers to give numerical intervals for ten general-knowledge questions, such that nine out of the ten answers would be correct. On average participants included the correct value within their interval only 5 out of 10 times, i.e. they underestimated potential errors in their estimations. Svenson is probably the most influential source regarding overoptimism. He made the subject intuitively understandable and established a standard measurement method that could be easily used for subsequent research. To give an example of overoptimism: Svenson asked students to compare their driving skills to those of their classmates. Roughly 80% believed they belonged to the top 50%, i.e. they overestimated their abilities. This paper also provides a closer look at the empirical methods normally applied in field studies. Although the phenomena are intuitively understandable, empirical research [...]
Hedonic Utility, Loss Aversion and Moral Hazard now publishers Inc
Książki / Literatura obcojęzyczna
There has been a resurgence of interest in hedonic utility, partly due to the inability of revealed preference theory to account for certain observable behaviors and partly as a result of substantial advances in brain imaging technology. Hedonic Utility, Loss Aversion and Moral Hazard summarizes these recent advances in the modeling and measurement of hedonic utility. It proposes that economists can use these studies to improve their understanding of economic phenomena by analyzing a familiar economic model - the principal-agent relationship with moral hazard - in which the properties of hedonic utility make a difference in how incentives are provided. The idea is that a profit-maximizing principal will design the incentive contract by taking into account the hedonic experiences of the agent. As a result, the optimal contract pays attention to all properties of hedonic utility. The modal transfer is exactly at the reference outcome, the value expected on average by the agent. The diminishing enjoyment of extra rewards is exploited by giving an additional bonus that increases with the level of output, while the occurrence of negative emotions due to losses is minimized by imposing only the biggest possible punishment in states where output is very low. Hedonic Utility, Loss Aversion and Moral Hazard analyzes several extensions of the basic model - competition among principals, aggregate uncertainty, and dynamics - and discusses how their implications relate to the structure of incentive contracts observed in practice. For instance, the presence of hedonic utility implies no response of the modal transfer with respect to the aggregate state of nature but an increase in the probability of the biggest punishment being implemented. In addition, by incorporating future expected outcomes in current hedonic experience, hedonic utility allows for the possibility that stationary contracts may be optimal even if the actual behavior of the agent exhibits deviations from risk neutrality.
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