Harin, Alexander
(2023):
*To solve old problems of economics. The experimental background.*

Preview |
PDF
Certain-Uncertain 230426.pdf Download (205kB) | Preview |

## Abstract

Old problems of the mathematical description of the economical behavior of a man are briefly reviewed. They are a comparison of choices of a man between uncertain and sure games and the radically different behavior of a man in different domains. The proposed solution of the problems consists in purely mathematical method and models and is briefly reviewed in the Appendix. The main attention is paid to the analysis of the experimental support of this possible solution. The generally accepted random incentive experimental procedures are discussed. A “certain-uncertain” inconsistency between the certain type of the choices and the uncertain type of the incentives is revealed and analyzed.

Item Type: | MPRA Paper |
---|---|

Original Title: | To solve old problems of economics. The experimental background |

Language: | English |

Keywords: | behavior; decision; prospect theory; utility; experiment; incentive; economics; |

Subjects: | C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General C - Mathematical and Quantitative Methods > C9 - Design of Experiments C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C93 - Field Experiments D - Microeconomics > D8 - Information, Knowledge, and Uncertainty D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty |

Item ID: | 117157 |

Depositing User: | Alexander Harin |

Date Deposited: | 26 Apr 2023 21:55 |

Last Modified: | 26 Apr 2023 21:55 |

References: | Abdellaoui, M., A. Baillon, L. Placido, and P. P. Wakker, “The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation,” American Economic Review, 101 (2011), 695-723. Aczél, J., and D. R. Luce, “A behavioral condition for Prelec’s weighting function on the positive line without assuming W(1)=1,” Journal of Mathematical Psychology, 51 (2007), 126–129. Aldashev, G., Carletti, T., and Righi, S., “Follies subdued: Informational efficiency under adaptive expectations and confirmatory bias,” Journal of Economic Behavior & Organization, 80 (2011), 110–121. Allais, M., “Le comportement de l'homme rationnel devant le risque: critique des postulats et axiomes de l'école Américaine,” Econometrica, 21 (1953), 503–546. Andreoni, J., and C. Sprenger, “Risk Preferences Are Not Time Preferences,” American Economic Review, 102 (2012) 3357-76. Arnold, L., H. Crauel, and V. Wihstutz, “Stabilization of linear systems by noise,” SIAM J. Control Optim, 21 (1983), 451–461. Baltussen, G., T. Post, M. J. van den Assem, and P. P. Wakker “Random Incentive Systems in a Dynamic Choice Experiment,” Experimental Economics, 15 (2012), 418–443. Beattie, J., and G. Loomes, “The impact of incentives upon risky choice experiments,” Journal of Risk and Uncertainty, 14 (1997), 155–168. Bruhin, A., H. Fehr-Duda, and T. Epper, “Risk and Rationality: Uncovering Heterogeneity in Probability Distortion,” Econometrica, 78 (2010), 1375-1412. Butler, D., and G. Loomes, “Imprecision as an Account of the Preference Reversal Phenomenon,” American Economic Review, 97 (2007), 277-297. Chay, K., P. McEwan, and M. Urquiola, “The Central Role of Noise in Evaluating Interventions that Use Test Scores to Rank Schools”, American Economic Review, 95 (2005), 1237-1258. Cho, Y., and D. R. Luce, ‘Tests of hypotheses about certainty equivalents and joint receipt of gambles,” Organizational Behavior and Human Decision Processes, 64 (1995), 229–248. Correa, M., Gonzalez-Sabate, L., and Serrano, I., “Home bias effect in the management literature,” Scientometrics, 95 (2013), 417–433. Cox, J. C., and S. Epstein, “Preference reversals without the independence axiom,” American Economic Review, 79 (1989), 408–426. Fehr, E., and A. Falk, “Psychological foundations of incentives,” European Economic Review, 46 (2002), 687-724. Gaudecker von, Hans-Martin, Arthur van Soest, and Erik Wengstrom, “Heterogeneity in Risky Choice Behavior in a Broad Population.” American Economic Review, 101 (2011), 664-94. Halevy, Y., “Strotz Meets Allais: Diminishing Impatience and the Certainty Effect,” The American Economic Review, 98 (2008), 1145-1162. Harin, А., “Forbidden Zones for the Expectations of Data: New Mathematical Methods and Models for Behavioral Economics,” Academic Journal of Applied Mathematical Sciences, 8 (2022), 12-26. Harin, А., “Macroscopic analogs of quantum-mechanical phenomena and auto-transformations of PDFs,” THE 5TH INTERNATIONAL CONFERENCE ON STOCHASTIC METHODS (ICSM-5). Track B. Applications of Stochastic Methods. B.2, Moscow, 2020. See also: Harin, А., “Macroscopic analogs of quantum-mechanical phenomena and auto-transformations of functions,” MPRA Paper, 2020, No. 104188, [Online] Available at: https://mpra.ub.uni-muenchen.de/104188/1/MPRA_paper_104188.pdf Harin, А., “Forbidden zones for the expectation. New mathematical results for behavioral and social sciences,” MPRA Paper, 2018, No. 86650, [Online] Available_at: https://mpra.ub.uni-muenchen.de/86650/1/MPRA_paper_86650.pdf Harin, А., “The random-lottery incentive system. Can p~1 experiments deductions be correct?” 16th conference on the Foundations of Utility and Risk, Rotterdam, 2014. See also: Harin, А., “Problems of utility and prospect theories. A ”certain-uncertain” inconsistency of the random-lottery incentive system,” MPRA Paper, 2014, No. 55706, [Online] Available_at: https://mpra.ub.uni-muenchen.de/55706/1/MPRA_paper_55706.pdf Harin, А., “Data dispersion in economics (II) – Inevitability and Consequences of Restrictions,” Review of Economics & Finance, 2(3) (2012b), 24-36. Harin, А., “Data dispersion in economics (I) – Possibility of Restrictions,” Review of Economics & Finance, 2(2) (2012a), 59-70. Harin, А., “Principle of uncertain future, examples of its application in economics, potentials of its applications in theories of complex systems, in set theory, probability theory and logic”, Seventh International Scientific School "Modelling and Analysis of Safety and Risk in Complex Systems", Saint-Petersburg, 2007. See also: Harin, А., “Principle of uncertain future and utility,” MPRA Paper, 2007, No. 1959, [Online] Available_at: https://mpra.ub.uni-muenchen.de/1959/1/MPRA_paper_1959.pdf Harin, А., “New Economics Papers. Utility Models & Prospect Theory”, (2005-2023) [Online] Available at: http://econpapers.repec.org/scripts/nep.pf?list=nepupt Harrison, G. W., E. Johnson, M. Mcinnes, and E. Rutström, “Risk Aversion and Incentive Effects: Comment,” American Economic Review, 95 (2005), 897-901. Hey, J., and C. Orme, “Investigating Generalizations of Expected Utility Theory Using Experimental Data,” Econometrica, 62 (1994), 1291-1326. Holt, C. A., “Preference reversals and the independence axiom,” American Economic Review, 76 (1986), 508–515. Holt, C. A., S. K. Laury, “Risk Aversion and Incentive Effects” The American Economic Review, 92 (2002), 1644-1655. Kahneman, D., J. L. Knetsch, and R. H. Thaler, “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,” The Journal of Economic Perspectives, 5 (1991), 193-206. Kahneman, D., and R. H. Thaler, “Anomalies: Utility Maximization and Experienced Utility,” Journal of Economic Perspectives, 20 (2006), 221-234. Kahneman, D., and A. Tversky, “Prospect Theory: An Analysis of Decision under Risk,” Econometrica, 47 (1979), 263-291. Kumar, D. and Goyal, N., “Behavioural biases in investment decision making – a systematic literature review.” Qualitative Research in Financial Markets, 7 (2015), 88–108. Larkin, I., and S. Leider, “Incentive Schem+es, Sorting, and Behavioral Biases of Employees: Experimental Evidence,” American Economic Journal: Microeconomics, 4 (2012), 184-214. Lee, J., “The effect of the background risk in a simple chance improving decision model,” Journal of Risk and Uncertainty, 36 (2008), 19–41. Loewenstein, G., and R. H. Thaler, “Anomalies. Intertemporal Choice,” Journal of Economic Perspectives, 3 (1989), 181–193. Madansky, A., “Bounds on the expectation of a convex function of a multivariate random variable”. Ann. Math. Stat., 30 (1959), 743–746. McCord, M., and R. de Neufville, “Lottery Equivalents: Reduction of the Certainty Effect Problem in Utility Assessment,” Management Science, 32 (1986), 56-60. Meier, S. and Sprenger, C., “Present-biased preferences and credit card borrowing,” American Economic Journal: Applied Economics, 2 (2010), 193–210. Prelec, D., “The Probability Weighting Function,” Econometrica, 66 (1998), 497-527. Schoemaker, P., and J. Hershey, “Utility measurement: Signal, noise, and bias,” Organizational Behavior and Human Decision Processes, 52 (1992), 397-424. Starmer, C., “Developments in Non-Expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk,” Journal of Economic Literature, 38 (2000), 332-382. Starmer, C., and R. Sugden, “Does the Random-Lottery Incentive System Elicit True Preferences? An Experimental Investigation,” American Economic Review, 81 (1991), 971–78. Steingrimsson, R., and R. D. Luce, Empirical evaluation of a model of global psychophysical judgments: IV. Forms for the weighting function. Journal of Mathematical Psychology, 51 (2007), 29–44. Thaler, R., “Behavioral Economics: Past, Present, and Future,” Am. Econ. Rev., 106 (2016), 1577–1600. Tversky, A., and R. H. Thaler, “Anomalies: Preference Reversals,” The Journal of Economic Perspectives, 4 (1990), 201-211. Vossler, C. A., M. Doyon, and D. Rondeau, “Truth in Consequentiality: Theory and Field Evidence on Discrete Choice Experiments,” American Economic Journal: Microeconomics, 4 (2012), 145-171. Wakker, P. P., “Message to referees who want to embark on yet another discussion of the random-lottery incentive system for individual choice,” 2007. http://people.few.eur.nl/wakker/miscella/debates/randomlinc.htm Zhang, Y., E. Siemsen. “A meta-analysis of newsvendor experiments: Revisiting the pull-to-center asymmetry”, Production and Operations Management, 28 (2019), 140–156. |

URI: | https://mpra.ub.uni-muenchen.de/id/eprint/117157 |