William, Barnett and Qing, Han and Jianbo, Zhang (2018): Monetary Services Aggregation under Uncertainty: A Behavioral Economics Extension Using Choquet Expectation.
This is the latest version of this item.

PDF
MPRA_paper_88320.pdf Download (433kB)  Preview 
Abstract
A central tenet of behavioral economics is that the axioms producing expected utility maximization by consumers are too strong to be descriptive of rational behavior. The existing theory of monetary services aggregation under risk assume expected utility maximization. We extend those results to uncertainty under weaker axiomatic assumptions by using Choquet expectations. Choquet integration reduces to Riemann integration as a special case under the stronger assumption of additive probability measure, not accepted in the literature on behavioral economics. Our theoretical results on monetary services aggregation are generalizations of prior results, nested as special cases of our results under stronger behavioral assumptions.
Item Type:  MPRA Paper 

Original Title:  Monetary Services Aggregation under Uncertainty: A Behavioral Economics Extension Using Choquet Expectation 
Language:  English 
Keywords:  Uncertainty Aversion, User Cost, Choquet Expectation, Monetary Aggregation 
Subjects:  C  Mathematical and Quantitative Methods > C4  Econometric and Statistical Methods: Special Topics > C43  Index Numbers and Aggregation E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E41  Demand for Money G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing ; Trading Volume ; Bond Interest Rates 
Item ID:  88320 
Depositing User:  William A. Barnett 
Date Deposited:  05 Aug 2018 11:34 
Last Modified:  02 Oct 2019 17:02 
References:  Allais, M. (1953). "Le Comportement de l'Homme Rationnel devant le Risque: Critique des Postulats et Axiomes de l'Ecole Americaine," Econometrica 21(4): 503546. Barnett, W. A. (1978). "The User Cost of Money," Economics Letters 1: 145149. Barnett, W. A. (1980). "Economic Monetary Aggregates: An Application of Index Number and Aggregation Theory," Journal of Econometrics 14: 1148. Barnett, W. A. (1995). "Exact Aggregation under Risk." In W. A. Barnett, M. Salles, H. Moulin, and N. Schofield (eds.), Social Choice, Welfare and Ethics, Proceedings of the Eighth International Symposium in Economic Theory and Econometrics, Cambridge University Press, 353374. Reprinted in W. A. Barnett and A. Serletis (2000) (eds.), The Theory of Monetary Aggregation, Amsterdam: NorthHolland, Ch. 10: 195206. Barnett, W. A. (2012). Getting It Wrong: How Faulty Monetary Statistics Undermine the Fed, the Financial System, and the Economy, MIT Press, Cambridge, MA. Barnett, W.A. and M. Chauvet (2011). “How Better Monetary Statistics Could Have Signaled the Financial Crisis,” Journal of Econometrics 161(1): 623. Barnett, W. A., J. Keating, and L. Kelly (2011). “Rethinking the Liquidity Puzzle: Applications of a New Measure of Economic Money Stock,” Journal of Banking and Finance 35(4): 7651026. Barnett, W. A., Y. Liu, and M. Jensen (1997). "CAPM Risk Adjustment for Exact Aggregation over Financial Assets," Macroeconomic Dynamics 1: 485512. Barnett, W. A., and S. Wu (2005). "On User Costs of Risky Monetary Assets," Annals of Finance 1: 3550. Belongia, M. T. and J. A. Chalfant (1989). “The Changing Empirical Definition of Money: Some Estimates from a Model of the Demand for Money Substitutes,” Journal of Political Economy 97: 387397. Belongia, M.T. and P.N. Ireland (2014). “The Barnett Critique after Three Decades: A New Keynesian Analysis.” Journal of Econometrics 183(1): 521. Belongia, M. T. and P. N. Ireland (2015a), “Interest Rates and Money in the Measurement of Monetary Policy,” Journal of Business and Economic Statistics 332: 255269. Belongia, M. T. and P. N. Ireland (2015b), “A ‘Working’ Solution to the Question of Nominal GDP Targeting, Macroeconomic Dynamics 13(3): 508534. Belongia, M.T. and P.N. Ireland (2016). “Money and Output: Friedman and Schwartz Revisited.” Journal of Money, Credit and Banking 48(6): 12231266. Bewley. T. (2002). "Knightian Decision Theory: Part 1," Decisions in Economics and Finance, 25: 79110. Chateauneuf, A. and M. D. Cohen (2010). “Cardinal Extensions of the EU Model Based on the Choquet Integral.” In Bouyssou, Dennis; Dubois, Didier; Mirlot, Marc; and Henri Prade, Decisionmaking Process: Concepts and Methods. Choquet, G. (1954). "Theory of Capacities," Annales de l'institut Fourier 5: 131295. Ellsberg, D. (1961). "Risk, Ambiguity and the Savage Axioms," Quarterly Journal of Economics 75: 643669. Epstein, L. G., and S. E. Zin (1989). "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica 57(4): 937969. Gilboa, I. (1987). "Expected Utility Theory with Purely Subjective NonAdditive Probabilities," Journal of Mathematical Economics 16: 6588. Gilboa, I. (2009). Theory of Decision under Uncertainty. New York: Cambridge University Press. Gilboa, I., and D. Schmeidler (1989). "Maxmin Expected Utility with a NonUnique Prior," Journal of Mathematical Economics 18: 141153. Grabisch, J. (1996). “The Application of Fuzzy Integrals in Multicriteria Decision Making,” European Journal of Operational Research 89: 445456. Jadidzadeh, Ali and A. Serletis (2018), “The Demand for Assets and Optimal Monetary Aggregation,” Journal of Money, Credit and Banking, forthcoming. Kahneman, D., and A. Tversky (1979). "Prospect Theory: An Analysis of Decision under Risk," Econometrica 47(2): 263292. Keating, J., and A. Lee Smith (2018). "Are Monetary Aggregates Useful in Taylor Rules? Evidence from a DSGE Model with a Financial Sector," University of Kansas, working paper. Knight, F. H. (1921). Risk, Uncertainty, and Profit, Boston/New York: Houghton Mifflin. Poterba, J.M. and J.J. Rotemberg (1987). “Money in the Utility Function: An Empirical Implementation,” Chapter 10 in W.A. Barnett and K.J. Singleton (eds), New Approaches to Monetary Economics. Cambridge: Cambridge University Press: 21940. Savage, L. J. (1954). The Foundations of Statistics, New York: John Wiley and Sons. (Second Edition, 1972, New York: Dover). Schmeidler, D. (1986). "Integral Representation without Additivity," Proceedings of the American Mathematical Society 97: 255261. Schmeidler, D. (1989). "Subjective Probability and Expected Utility without Additivity," Econometrica 57: 571587. Serletis, A. and P. Gogas (2014). “Divisia Monetary Aggregates, the Great Ratios, and Classical Money Demand Functions,” Journal of Money, Credit and Banking 46(1): 22941. Serletis, A. and S. Rahman (2013). “The Case for Divisia Money Targeting,” Macroeconomic Dynamics 17: 16381658. Thaler, Richard (1993). Advances in Behavioral Finance, Russell Sage Foundation, New York, NY. Tversky, A. and D. Kahneman (1992). “Advances in Prospect Theory: Cumulataive Representation of Uncertainty,” Journal of Risk and Uncertainty 5: 297323. Weil, P. (1990). "Nonexpected Utility in Macroeconomics," Quarterly Journal of Economics 105: 2942. Yaari, M. E. (1987). "The Dual Theory of Choice under Risk," Econometrica 55(1): 95115. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/88320 
Available Versions of this Item

Monetary Services Aggregation under Uncertainty: A Behavioral Economics Extension Using Choquet Expectation. (deposited 31 Jul 2018 03:46)
 Monetary Services Aggregation under Uncertainty: A Behavioral Economics Extension Using Choquet Expectation. (deposited 05 Aug 2018 11:34) [Currently Displayed]