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A critical element in all discounted utility models is the specification of a discount function. We introduce three functions: the delay, speedup and generating functions. Each can be uniquely elicited from behaviour. The delay function determines stationary and the common difference effect. The...
Persistent link: https://www.econbiz.de/10010929075
provide a class of utility functions compatible with RT. We show how RT can be extended to incorporate uncertainty and …
Persistent link: https://www.econbiz.de/10005385062
A critical element in all discounted utility models is the specification of a discount function. We extend the standard model to allow for reference points for both out- comes and time. We consider the axiomatic foundations and properties of two main classes of discount functions. The first, the...
Persistent link: https://www.econbiz.de/10010723273
discounting can be incorporated within our proposed framework; these include attribute models and models of uncertainty. …
Persistent link: https://www.econbiz.de/10010723275
This paper selectively reviews the literature on behavioural finance, focusing on the aggregate market implications of the behavioural biases that this literature has identified. Advocates of behavioural economics and finance argue that economic agents behave in a way which departs significantly...
Persistent link: https://www.econbiz.de/10005422692
Since Kahneman and Tversky (1979), it has been generally recognized that decision makers overweight low probabilities and underweight high probabilities. Of the several weighting functions that have been proposed, that of Prelec (1998) has the attractions that it is parsimonious, consistent with...
Persistent link: https://www.econbiz.de/10005422702
Evidence shows that (i) people overweight low probabilities and underweight high probabilities, but (ii) ignore events of extremely low probability and treat extremely high probability events as certain. Decision models, such as rank dependent utility (RDU) and cumulative prospect theory (CP),...
Persistent link: https://www.econbiz.de/10005422703
Tax evasion analysis is typically based on an expected utility theory (EUT) framework. However, this leads to several qualitative and quantitative puzzles. Given actual probabilities of audit and penalty rates the return on evasion ranges from 91-98 percent. So why don’t most of us evade?...
Persistent link: https://www.econbiz.de/10005422712
discounting. We provide a class of utility functions compatible with RT. We show how RT can be extended to incorporate uncertainty …
Persistent link: https://www.econbiz.de/10005422725
The predictions of expected utility theory (EUT) applied to tax evasion are flawed on two counts: (i) They are quantitatively in error by huge orders of magnitude. (ii) Higher taxation is predicted to lower evasion, which is at variance with the evidence. An emerging literature in behavioral...
Persistent link: https://www.econbiz.de/10005230636