For decades, discrete choice modelling was practically dominated by only two models: multinomial probit and logit. This paper presents a novel alternative—harmonic choice model. It is qualitatively similar to multinomial probit and logit: if one choice alternative greatly exceeds all (falls below at least one of) other alternatives in terms of utility then it is chosen with probability close to one (zero). Compared to probit and logit, the new model has relatively flat tails and it is steeper in the neighborhood (...) of zero (when all alternatives yield the same utility and the decision maker chooses among them at random). (shrink)

Empirical research often requires a method how to convert a deterministic economic theory into an econometric model. A popular method is to add a random error term on the utility scale. This method, however, ignores stochastic dominance. A modification of this method is proposed to account for stochastic dominance. The modified model compares favorably to other existing models in terms of goodness of fit to experimental data. The modified model can rationalize the preference reversal phenomenon. An intuitive axiomatic characterization of (...) the modified model is provided. Important microeconomic concept of risk aversion is well defined in the modified model. (shrink)

In binary choice between discrete outcome lotteries, an individual may prefer lottery L1 to lottery L2 when the probability that L1 delivers a better outcome than L2 is higher than the probability that L2 delivers a better outcome than L1. Such a preference can be rationalized by three standard axioms (solvability, convexity and symmetry) and one less standard axiom (a fanning-in). A preference for the most probable winner can be represented by a skew-symmetric bilinear utility function. Such a utility function (...) has the structure of a regret theory when lottery outcomes are perceived as ordinal and the assumption of regret aversion is replaced with a preference for a win. The empirical evidence supporting the proposed system of axioms is discussed. (shrink)

Discounted utility theory and its generalizations use discount functions for weighting utilities of outcomes received in different time periods. We propose a new simple test of convexity–concavity of discount function. This test can be used with any utility function and any preferences over risky lotteries. The data from a controlled laboratory experiment show that about one third of experimental subjects reveal a concave discount function and another one third of subjects reveal a convex discount function.

Risk preferences of Australian academics are elicited by analyzing the aggregate distribution of their retirement funds across available investment options. Not more than 10 % of retirement funds are invested as if their owners maximize expected utility under the assumption of constant relative risk aversion with an empirically plausible level of risk aversion. An implausibly high level of risk aversion is required to rationalize any investment into bonds when stocks are available. Not more than 36.54 % of all investments can (...) be rationalized by a model of loss averse preferences. Moreover, the levels of loss aversion typically reported in the experimental studies imply overinvestment in bonds, which is not observed in the data. Up to 67.18 % of all investments can be rationalized by rank-dependent utility or Yaari’s dual model with empirically plausible parameters. A median Australian academic behaves as if maximizing rank-dependent utility with parameter γ∈[0.76,0.79]\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$\gamma \in [0.76, 0.79]$$\end{document} in a Tversky and Kahneman probability weighting function. (shrink)

Debreu (American Economic Review 50:186–188, 1960) famously criticized Luce (Individual choice behavior, Wiley, New York, 1959) choice model with what became known as the red-bus blue-bus example: if a choice set contains two distinct alternatives C (car) and B (blue bus) then adding a third alternative A (red bus) that is essentially identical to B does not affect the choice probability of C but reduces the choice probability of B by half. Debreu’s critique highlights the existence of substitution effects violating (...) the principle of independence from irrelevant alternatives—the cornerstone of Luce (Individual choice behavior, Wiley, New York, 1959) choice model. This paper weakens this principle to construct a model of probabilistic choice satisfying Debreu’s critique. (shrink)

The problem of intertemporal choice arises when outcomes are received in different moments of time. This paper presents an axiomatic model of intertemporal choice when consumption in the previous moment of time contributes to utility evaluation of consumption in the current moment. This model generalizes classic discounted utility theory (also known as constant or exponential discounting) in two ways. First, in every moment of time, a decision maker derives utility not only from current consumption but also from “residual” consumption in (...) the previous moment of time. Second, these utilities are discounted with weights that are essentially a quasi-hyperbolic discounting function. The paper presents an application of the proposed model to the problem of optimal consumption and savings given a fixed income (wealth). When a decision maker derives satisfaction from both instantaneous consumption as well as a share of consumption in the previous moment of time, optimal consumption path is cyclic—periods of relatively high consumption are interchanged with periods of relatively low consumption. These cycles decay over time. Asymptotically, the consumption path exhibits conventional properties (constant, increasing or decreasing over time when a gross interest rate multiplied by discount factor is correspondingly equal to, greater than, or less than one). (shrink)

This article investigates how subjects determine minimum selling prices for lotteries. We design an experiment where subjects have at every moment an incentive to state their minimum selling price and to adjust the price, if they believe that the price that they stated initially was not optimal. We observe frequent and sizeable price adjustments. We find that random pricing models cannot explain the observed price patterns. We show that earlier prices contain information about future price adjustments. We propose a model (...) of Stochastic Pricing that offers an intuitive explanation for these price adjustment patterns. (shrink)

In decision theory, the betweenness axiom postulates that a decision maker who chooses an alternative A over another alternative B must also choose any probability mixture of A and B over B itself and can never choose a probability mixture of A and B over A itself. The betweenness axiom is a weaker version of the independence axiom of expected utility theory. Numerous empirical studies documented systematic violations of the betweenness axiom in revealed individual choice under uncertainty. This paper shows (...) that these systematic violations can be linked to another behavioral regularity—choice shifts in a group decision making. Choice shifts are observed if an individual faces the same decision problem but makes a different choice when deciding alone and in a group. (shrink)

Investors who are more willing to accept risks when evaluating their investments less frequently are said to exhibit myopic loss aversion (MLA). Several recent experimental studies found that, on average, subjects bet significantly higher amounts on a risky lottery when they observe only a cumulative outcome of several realizations of the lottery (long evaluation period). In this article, we reexamine these empirical findings by analyzing individual rather than aggregate choice patterns. The behavior of the majority of subjects is inconsistent with (...) the hypothesis of MLA: they bet an intermediate fraction of their initial endowment and these bets, on average, are not significantly different across two treatments with short and long evaluation period. We discuss several alternative explanations of this finding, including the Fechner model of random errors and the financial asset pricing model. (shrink)

Elicitation methods in decision-making under risk allow us to infer the utilities of outcomes as well as the probability weights from the observed preferences of an individual. An optimally efficient elicitation method is proposed, which takes the inevitable distortion of preferences by random errors into account and minimizes the effect of such errors on the inferred utility and probability weighting functions. Under mild assumptions, the optimally efficient method for eliciting utilities and probability weights is the following three-stage procedure. First, a (...) probability is elicited whose subjective weight is one half. Second, the utility function is elicited through the midpoint chaining certainty equivalent method using the probability elicited at the first stage. Finally, the probability weighting function is elicited through the probability equivalent method. (shrink)

Standard axioms of additively separable utility for choice over time and classic axioms of expected utility theory for choice under risk yield a generalized expected additively separable utility representation of risk-time preferences over probability distributions over sure streams of intertemporal outcomes. A dual approach is to use the analogues of the same axioms in a reversed order to obtain a generalized additively separable expected utility representation of time–risk preferences over intertemporal streams of probability distributions over sure outcomes. The paper proposes (...) an additional axiom, which is called risk-time reversal, for obtaining a special case of the two representations—expected discounted utility. The axiom of risk-time reversal postulates that if a risky lottery over streams of sure intertemporal outcomes and an intertemporal stream of risky lotteries yield the same probability distribution of possible outcomes in every point in time then a decision-maker is indifferent between the two. This axiom is similar to assumption 2 “reversal of order in compound lotteries” in Anscombe and Aumann :199–205, 1963, p. 201). (shrink)

This paper presents a new decision theory for modelling choice under risk. The new theory is a two-parameter generalization of expected utility theory. The proposed theory assumes that a decision maker: behaves as if maximizing expected utility; but may experience disappointment when the utility of a lottery’s outcome falls short of the expected utility of the lottery; and may have a preference for gambling. The proposed theory can rationalize the fourfold pattern of risk attitudes; the common ratio effect and the (...) reverse thereof ; the Allais paradox in classical common consequence problems and the reverse Allais paradox—in common consequence problems with an even split of a probability mass; violations of the betweenness axiom; switching behavior in the Samuelson’s example; violations of ordinal, upper and lower cumulative independence ; and preference reversals between valuations and choice. In application to insurance, the theory can rationalize full insurance with an actuarially unfair premium and aversion to probabilistic insurance. In application to optimal portfolio investment, the theory can rationalize the equity premium puzzle. (shrink)

Prospect theory emerged as one of the leading descriptive decision theories that can rationalize a large body of behavioral regularities. The methods for eliciting prospect theory parameters, such as its value function and probability weighting, are invaluable tools in decision analysis. This paper presents a new simple method for eliciting prospect theory’s value function without any auxiliary/simplifying parametric assumptions. The method is applicable both to choice under ambiguity (Knightian uncertainty) and risk (when events are characterized by objective probabilities). Our new (...) elicitation method is implemented in a simple paper-and-pencil experiment (via an iterative multiple price list format). This is one of the first experiments that elicits non-parametric prospect theory’s value function with salient rewards. The collected data generally confirm findings in the existing literature: the value function is S-shaped (concave in the gain domain and convex in the loss domain) though there is a weaker loss aversion on the aggregate level and a substantial heterogeneity in loss aversion on the individual level (41% loss averse, 6% loss neutral and 53% gain seeking). (shrink)

Uncertain or ambiguous events cannot be objectively measured by probabilities, i.e. different decision-makers may disagree about their likelihood of occurrence. This paper proposes a new decision-theoretical approach on how to measure ambiguity that is analogous to axiomatic risk measurement in finance. A decision-theoretical measure of ambiguity is a function from choice alternatives to non-negative real numbers. Our proposed measure of ambiguity is derived from a novel assumption that ambiguity of any choice alternative can be decomposed into a left-tail ambiguity and (...) a right-tail ambiguity. This decomposability assumption is combined with two standard assumptions: ambiguity sources are independent from outcomes and any elementary increase in uncertainty necessarily increases ambiguity. (shrink)

In the television show Deal or No Deal, a contestant is endowed with a sealed box containing a monetary prize between one cent and half a million euros. In the course of the show, the contestant is offered to exchange her box for another sealed box with the same distribution of possible monetary prizes inside. This offers a unique natural experiment for studying endowment effects under high monetary incentives. We find evidence of only a weak endowment effect when contestants exchange (...) their box for another box with the same distribution of possible prizes. (shrink)

Standard models of portfolio investment rely on various statistical measures of dispersion. Such measures favor returns smoothed over all states of the world and penalize abnormally low as well as abnormally high returns. A model of portfolio investment based on the tradeoff between expected return and expected loss considers only abnormally low returns as undesirable. Such a model has a comparative advantage over other existing models in that a first-order stochastically dominant portfolio always has a higher expected return and a (...) lower expected loss. Expected return—expected loss model of portfolio investment can rationalize the equity premium puzzle. Two random variables are not comoving if there is at least one state of the world in which one random variable yields a positive return and the other—a negative return. Such random variables provide hedging benefits from diversification in portfolio investment according to the expected return—expected loss model. A special case of this model, when an investor linearly trade-offs expected returns and expected losses, is also a special case of the prospect theory when a decision-maker has a piece-wise linear value function without any probability weighting. (shrink)

This paper presents an overlapping generations household model with positive assortative matching, incomplete information about partner’s type and a gender pay gap on the labor market. In equilibrium, a gender pay gap creates an excess supply of desirable husbands and women marry early to increase their chance of being matched with an ideal partner, which results in a gender age gap on the marriage market. A modified model with asymmetric information yields a similar result. An extended model where individuals have (...) an option to remain single yields a similar result as well. (shrink)

The voting paradox occurs when a democratic society seeking to aggregate individual preferences into asocialpreference reaches an intransitive ordering. However it is not widely known that the paradox may also manifest for anindividualaggregating over attributes of risky objects to form a preference over those objects. When this occurs, the relation ‘stochastically greater than’ is not always transitive and so transitivity need not hold between those objects. We discuss the impact of other decision paradoxes to address a series of philosophical and (...) economic arguments against intransitive (cyclical) choice, before concluding that intransitive choices can be justified. (shrink)

In the television show Deal or No Deal a contestant is endowed with a sealed box, which potentially contains a large monetary prize. In the course of the show the contestant learns more information about the distribution of possible monetary prizes inside her box. Consider two groups of contestants, who learned that the chances of their boxes containing a large prize are 20% and 80% correspondingly. Contestants in both groups receive qualitatively similar price offers for selling the content of their (...) boxes. If contestants are less risk averse when facing unlikely gains, the price offer is likely to be more frequently rejected in the first group than in the second group. However, the fraction of rejections is virtually identical across two groups. Thus, contestants appear to have identical risk attitudes over (large) gains of low and high probability. (shrink)

B a c k g r o u n d. The ordinary language philosophy should be considered as a set of different but interconnected research projects within the Anglo-American analytical philosophy of the first half and middle of the 20th century. A common factor for these studies is the application of the method of linguistic analysis of natural language expressions to solve many classical problems for philosophy. This method replaced the prevailing idealistic concepts, and was picked up and developed in (...) Great Britain by the works and scientific explorations of J. Moore and B. Russell. It is a generally accepted opinion that the sphere of interests of representatives of the ordinary language philosophy is divided between two poles, represented by the works of L. Wittgenstein and D. Austin. M e t h o d s. In the article, the author used the method of historical-philosophical reconstruction to clarify the role, place and genesis of the ordinary language philosophy as a dominant methodology within the Anglo-American analytical philosophy of the middle of the 20th century, general scientific methods of cognition: analysis, synthesis, generalization to clarify key ideas and concepts, which is the basis of the methodology of the ordinary language philosophy, as well as methods of systematization and comparison. R e s u l t s. The article clarifies the genesis of the main ideas and concepts of the philosophy of everyday language, as well as gives an example of the modern strategy of criticism of this methodological direction. The key postulates of the ordinary language philosophy age are clarified, namely: (i) the thesis that philosophical problems arise due to the incorrect use of language and must be solved by clarifying the meanings of words, (ii) philosophical analysis should not be based on the discovery of hidden logical forms of expression, and on the clarification of the necessary and sufficient conditions for the use of the expression, including the analysis of the situation of use, (iii) meaning as use, (iv) the philosophical analysis of the meaning should be carried out informally, taking into account the analysis of each specific case of the use of the expression, (v) criticism systematic theories of meaning. C o n c l u s i o n s. At the current stage of the development of analytical philosophy, there is a noticeable increase in attention to the achievements of the ordinary language philosophy. Among modern researchers and critics of this direction, the names of A. Baz, D. Nagel, S. Somes, and T. Williamson can be singled out. The presence of the interest of modern researchers indicates premature statements about the completion of the ordinary language philosophy. This concept should be rehabilitated, and its methodological apparatus should enrich the arsenal of scientific methods of modern analytical philosophers. (shrink)

In 1997, a court in Cyprus jailed Pavlos Georgiou for fifteen months for knowingly infecting a British woman, Janet Pink, with HIV-1 through unprotected sexual intercourse. Pink met Georgiou in January 1994 whilst on holiday. She discovered that she had contracted the virus from him in October 1994 but continued the relationship until July 1996 when she developed AIDS. She returned to the UK for treatment and reported Georgiou to the Cypriot authorities.1There have been a number of legal cases involving (...) deliberate transmission of HIV, but most have involved forced exposure to infected bodily fluids for example, rape or biting, and have been dealt with using the existing legislation for rape or assault. While it is often difficult to prove responsibility for transmission in cases of forced exposure to HIV, it is even more contentious in cases like those of Janet Pink where an individual has consented to sex but claims that he/she was not forewarned of his/herpartner's HIV-positive status. At present there is no specific criminal offence of having unprotected sexual intercourse without disclosing one's HIV-positive status but a prosecution could possibly be brought under any one of a number of existing offences.2 Perhaps a change of policy needs to be considered. The Home Office has issued a consultation document which outlines a proposal that will allow the criminalisation of intentional transmission of diseases, like HIV, that are likely to cause serious harm. This revised legislation would cover all other potentially fatal diseases but seems primarily to be targeted at HIV transmission. Should transmission of HIV through consensual sex, without the HIV-positive status of the individual being disclosed, be an offence? This question, and that of whether there is a moral obligation to disclose a positive HIV status prior to having a sexual relationship is the subject of this paper. (shrink)

Since the publication of Edmund Gettier's challenge to the traditional epistemological doctrine of knowledge as justified true belief, Roberts and Wood claim that epistemologists lapsed into despondency and are currently open to novel approaches. One such approach is virtue epistemology, which can be divided into virtues as proper functions or epistemic character traits. The authors propose a notion of regulative epistemology, as opposed to a strict analytic epistemology, based on intellectual virtues that function not as rules or even as skills (...) but as habits of the heart. To that end, they divide the task of clarifying and expounding their notion in the book's two parts.In the first part, Roberts and Wood examine various components that constitute their notion of regulative epistemology. The first are the epistemic goods or goals that drive the epistemic process. What is needed, claim Roberts and Wood, is an enriched notion of these goods rather than the restricted notion of justified true belief. Epistemic agents are more than calculating devices in that …. (shrink)

The purpose of the study is to determine the impact of entrepreneurial initiative on the development of innovation activity of country enterprises. The theory of entrepreneurship by clarifying the essence of entrepreneurial initiative got further elaboration in the article. The methodical approach to the analysis and evaluation of the entrepreneurial initiative and its impact on the innovation activity of the enterprises, the results of which are the basis for further development of proposals to stimulate entrepreneurial initiative and development of their (...) innovation activity is suggested. The estimation of innovation activity of 1758 enterprises of Ukraine by calculating the integral indicator of innovation activity revealed its low level for innovation active enterprises. The method of one-dimensional linear regression has determined that an increase in the number of business structures per 10 thousand people of the country's population at a rate of 1.0 causes an increase in the indicator of innovation activity by 0.172. It is proved in the article that development of infrastructure of enterprenerial environment and creation of centers for entrepreneurship development act as an important mechanism of increasing innovation activity of enterprises of the country. (shrink)

The article deals with the public debt security in accordance with the realities of fiscal policy in Ukraine. There were identified the main disadvantages of the Ukrainian public debt risk assessment system. There was investigated world experience the debt security estimation indicators. Recently the debt security estimation in the conditions of financial and economic stagnation shows the rapid growth of debt burden, its indicators exceeded the maximum allowable parameters, primarily, due to externalities under the influence of budgetary and currency risksexacerbation. (...) There were offered the main direction of improving the debtmanagement in Ukraine, in particular, to extend and legislate debt security indicators; to develop a unified methodology for assessing debt risk by systematizing a list of debt risk indicators for weighting coefficients, a ball scale, such as a "temperature matrix"; to use indicators of elasticity in calculating the level of debt security, debt risks; to develop а unified methodology for evaluating and implementing a medium- and long-term risk strategy for managing sovereign debt with the targeting of financial and debt sustainability determinants and the possible to use the model of "financial suppression". (shrink)

R F Dearden; Theory and Practice in Education, Journal of Philosophy of Education, Volume 14, Issue 1, 30 May 2006, Pages 17–29, https://doi.org/10.1111/j.1467-.

This provocative collection of essays written by the influential Greek scholar E. R. Dodds between 1929 and 1971. represents the wide range of his literary and philosophical interests. Insightful and learned, the essays combine profound scholarship with the lucid humanity of a teacher awareof the special value of Greek studies in the modern world.

Розкрито сутність поняття «рейтинг». Доведено значущість рейтингової оцінки для суб’єктів фінансового ринку, зокрема для страхових компаній, потенційних страхувальників, інвесторів та кредиторів.

I defend the suggestion that the rational probability in the Sleeping Beauty paradox is one third. The reasoning in its favour is familiar: for every heads-waking, there are two tails-wakings. To complete the defense, I rebut the reasoning which purports to justify the competing suggestion – that the correct probability is half – by undermining its premise, that no new information has been received.

R S Downie; Professions and Professionalism, Journal of Philosophy of Education, Volume 24, Issue 2, 30 May 2006, Pages 147–159, https://doi.org/10.1111/j.1467-.

What kind of knowledge is medical knowledge? Can medicine be explained scientifically? Is disease a scientific concept, or do explanations of disease depend on values? What is ‘evidence-based’ medicine? Are advances in neuroscience bringing us closer to a scientific understanding of the mind? The nature of medicine raises fundamental questions about explanation, causation, knowledge and ontology – questions that are central to philosophy as well as medicine. In this book Paul R. Thompson and Ross E. G. Upshur introduce the fundamental (...) issues in philosophy of medicine for those coming to the subject for the first time. They introduce and explain the following key topics: Understanding the physician-patient relationship: the phenomenology of the medical encounter. Models and theories in biology and medicine: what role do theories play in medicine? Are they similar to scientific theories? Randomised controlled trials: can scientific experiments be replicated in clinical medicine? What are the philosophical criticisms levelled at RCTs? The concept of evidence in medical research: what do we mean by ‘Evidence-based medicine?’ Should all medicine be based on evidence? Causation in medicine What do advances in neuroscience reveal about the relationship between mind and body? Defining health and disease: are explanations of disease objective or do they depend on values? Evolutionary medicine: what is the role of evolutionary biology in understanding medicine? Is it relevant? Extensive use of empirical examples and case studies is made throughout the book. These include debates about smoking and cancer, the use of placebos in randomised controlled trials and controversies about research into the causes of HIV and autism. This is an indispendable introduction to those teaching philosophy of medicine and philosophy of science. (shrink)

Aim To study the views of people in a largely Muslim country, Kuwait, of the acceptability of a life-ending action such as physician-assisted suicide (PAS). Method 330 Kuwaiti university students judged the acceptability of PAS in 36 scenarios composed of all combinations of four factors: the patient's age (35, 60 or 85 years); the level of incurability of the illness (completely incurable vs extremely difficult to cure); the type of suffering (extreme physical pain or complete dependence) and the extent to (...) which the patient requests a life-ending procedure, euthanasia or PAS (no request, some form of request, repeated requests). In all scenarios, the patients were women who were receiving the best possible care. The ratings were subjected to cluster analysis and analyses of variance. Results Five clusters were found. For 44%, PAS was always very unacceptable, no matter what the circumstances. For 23%, it was unacceptable, but less so if the patient was older or requested it repeatedly. For 16%, it was unacceptable if the patient was young but was acceptable if the patient was elderly. For 5%, it was unacceptable if the patient had extreme pain but was acceptable if completely dependent. For 11%, it was unacceptable if the patient did not request it but acceptable if she did. Conclusion The majority of the Kuwaiti university students opposed PAS either categorically or with a slight variation according to circumstances. Nonetheless, a minority approved of PAS in some cases, particularly when the patient was elderly. (shrink)

R W K Paterson; Towards an Axiology of Knowledge, Journal of Philosophy of Education, Volume 13, Issue 1, 30 May 2006, Pages 91–100, https://doi.org/10.1111/j.1.

This original and lively book explores Greek ideas about health and disease and their influence on Greek thought. Fundamental issues such as causation and responsibility, purification and pollution, mind-body relations and gender differences, authority and the expert and who can challenge them, reality and appearances, good government, happiness, and good and evil themselves are deeply implicated. Using the evidence not just from Greek medical theory and practice but also from epic, lyric, tragedy, historiography, philosophy, and religion, G. E. R. Lloyd (...) offers the first comprehensive account of the influence of Greek thought about health and disease on the Greek imagination. (shrink)

The free-will defence holds that the value of significant free will is so great that God is justified in creating significantly free creatures even if there is a risk or certainty that these creatures will sin. A difficulty for the FWD, developed carefully by Quentin Smith, is that God is unable to do evil, and yet surely lacks no genuinely valuable kind of freedom. Smith argues that the kind of freedom that God has can be had by creatures, without a (...) risk of creatures doing evil. I shall show that Smith's argument fails – the case of God is disanalogous to the case of creatures precisely because creatures are creatures. (shrink)

R S Downie; Professions and Professionalism, Journal of Philosophy of Education, Volume 24, Issue 2, 30 May 2006, Pages 147–159, https://doi.org/10.1111/j.1467-.

R K Elliott; Education, Love of One’s Subject, and the Love of Truth, Journal of Philosophy of Education, Volume 8, Issue 1, 30 May 2006, Pages 135–153, https:/.