This paper studies a target-based procedure to rank lotteries that is normatively and observationally equivalent to the expected utility model. In view of this equivalence, the traditional utility-based language for decision making may be substituted with an alternative target-based language....

This paper describes a parametric family of utility functions for decision analysis. The parameterization is obtained by embedding the HARA class in a four-parameter representation for the risk aversion function. The resulting utility functions have only four shapes: concave, convex, S-shaped,...

We introduce a generalized theoretical approach to study imitation models and subject the models to rigorous experimental testing. In our theoretical analysis we find that the different predictions of previous imitation models are due to different informational assumptions, not to different...

This paper contains a study of stochastic stability of the development trap in a model of economic growth when the production function is subject to externalities and, as a result, the development trap steady state ins indeterminate. In the presence of indeterminacy, sunspot equilibria can...

This paper presents a model of individual behavior in minimum effort coordination games, focusing primarily on the effects of the number of players and the introduction of inter-group competition. It is shown that independent of the number of players and the number of competing groups, the most...

In many occupations, workers’ labor supply choices are constrained by institutional rules regulating labor time and effort provision. This renders explicit tests of the neoclassical theory of labor supply difŽ cult. Here we present evidence from studies examining labor supply responses in...

This paper characterizes optimal currency hedging in several models of downside risk. We consider, in turn, three models of hedging: (i) a firm that chooses its hedging policy in the presence of bankruptcy costs; (ii) an all equity firm that faces a convex tax schedule; and (iii) a firm whose...

The Nash equilibrium solution concept for games is based on the assumption of expected utility maximization. Reference dependent utility functions (in which utility is determined not only by an outcome, but also by the relationship of the outcome to a reference point) are a better predictor of...

I explore a behavioral model of political participation, first introduced by Quattrone and Tversky [1988], based on the primitives of prospect theory, as defined by Kahneman and Tversky [1979]. The model offers an alternative explanation for why the President’s party tends to lose seats in...

This paper presents an insight into the theoretical and empirical literature of Loss Aversion and Endowment Effect. The definition and conceptualisation of both ideas is introduced in order to define a framework for further analysis. Their presence implies a radical change in some of the basic...