evaluating decision strategies for equity of public risks many important decisions include the loss of life among their possible consequences alternative actions have different implications for the number of possible fatalities the equity of those eventual fatalities and the equity of the process resulting in those fatalities this paper defines a concept of ex ante risk equity to address the equity of the process and distinguishes this concept from the ex post risk equity of the fatalities the paper indicates that an analysis of decision strategies addresses ex ante equity in this context both types of equity as well as loss of life are included in a von neumann morgenstern utility model developed to evaluate public risks this approach provides a method to investigate the implications of different value judgments in examining alternatives and illustrates an appropriate use of von neumann morgenstern utility for problems involving social consequences such as public risks

decisions under uncertainty in social contexts abstract this paper theoretically and experimentally studies decision making in risky and social environments we explore the interdependence of two decisive behavioral determinants in such environments risk attitudes and social preferences in the form of inequality aversion our model and the data demonstrate that individual risk aversion is attenuated when lagging behind peers whereas it is amplified under favorable income inequality moreover people s choices are not only context dependent but they are sensitive to their degree of inequality aversion the majority of our experimental findings cannot be rationalized by rank dependent utility models or cumulative prospect theory our results contribute to the basic understanding of the underlying motives of social incentives in firms private households saving decisions employees career track choices or charitable giving under uncertainty

the ellsberg paradox and risk aversion an anticipated utility approach the paper describes a decision process under which it is rational to prefer a lottery with known probabilities to a similar ambiguous lottery where the decision maker does not know the exact values of the probabilities the ellsberg paradox this is done by modeling ambiguous lotteries as two stage lotteries by assuming the independence axiom without the reduction of compound lotteries axiom and by using the anticipated utility functional this paper also gives conditions under which less ambiguity is preferred and presents some comparative statics analysis as well as some inter personal comparisons finally it proves that within the anticipated utility framework risk and ambiguity are almost identical copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

peer effects and risk sharing in experimental asset markets abstract we investigate the effect of introducing information about peer portfolios in an experimental arrow debreu economy confirming the prediction of a general equilibrium model with inequality averse preferences we find that peer information leads to reduced variation in payoffs within peer groups information also improves risk sharing as the data suggests that experiencing earnings deviations from peers induces a shift to more balanced portfolios in a treatment where we highlight the highest earner we observe a reduction in risk sharing while highlighting the lowest earner has no effects compared to providing neutral information our results indicate that the presence of social information and its framing is an important determinant of equilibrium in financial markets

an efficiency explanation for why firms second source firms facing research costs and demand uncertainty may engage in second sourcing in which potential suppliers agree to pool production facilities i show how sellers and buyers both can benefit from the practice second sourcing allows firms to meet a wider range of possible rates of demand and often to supply a given rate of demand at a lower total cost than under non cooperation buyers benefit through a reduced probability of stock outs and frequently a lower purchase price semiconductor industry data are found to be consistent with the paper s predictions i introduction the practice of second sourcing is frequently observed among firms facing technological and demand uncertainty second sourcing encompasses agreements between buyers and sellers requiring that a firm license its proprietary technology to rivals as well as agreements among potential suppliers to pool production facilities the first type of agreement is often explained as guaranteeing buyers a secure supply at a fair price in this type of second sourcing agreement control over production and pricing decisions resides with each supplier the second arrangement where the owner of the production technology controls production and pricing has largely been overlooked by the literature despite its adoption by firms in a wide range of technologically dynamic industries including semiconductors robotics and biotechnology a primary motivation for this second form of secondsourcing i will argue is to achieve a more efficient matching between the industry s productive capacity and market demand this paper indicates how second sourcing of this form may benefit both purchasers and suppliers and identifies the conditions making second sourcing profitable for firms the existing literature has offered two explanations for second sourcing according to the first explanation second sourcing is sought by prospective buyers purchasers may require that a developer license alternative suppliers to force revelation of private cost information in the contract bidding process or to discipline the eventual supplier s pricing behavior examples of this line of reasoning are found in riordan and sappington 1989 anton and yao 1987 demski sappington and spiller 1987 and rob 1986 if this motivation is correct however it is sufficient for firms to compete at the contract bidding stage demsetz 1968 in contrast we often observe competition at the production stage with active second sourcing and a large number of licensed alternative suppliers in a single industry see section v this explanation s exclusive focus on the gains to buyers from second sourcing also is inconsistent with swann s 1987 observation that many manufacturers have actually sought second sources the literature s alternative explanation suggests that second sourcing may be preferred by producers farrell and gallini 1988 and shepard 1987 show how a monopoly supplier can use second sourcing as a commitment not to raise price or lower product quality in the future either of which would debase the value of sunk investments made by prospective purchasers if credible this commitment may stimulate industry demand sufficiently to yield higher profits for the former monopolist despite increased product market competition an important shortcoming of this second explanation is its apparent incongruity with the existence of five six or more second sourced suppliers in a single industry shepard 1987 for example shows that a single licensed alternate supplier will provide the monopolist with its desired credible commitment to future price and quality this paper suggests an alternative explanation that is consistent with observed trends in second sourcing i depart from the existing literature s focus upon principal agent problems to analyze secondsourcing in a market flamework the paper indicates why sellers may secondsource voluntarily explains why multiple second sources will be preferred and shows how both sides in the agreement may benefit

social preferences under risk equality of opportunity versus equality of outcome this paper axiomatizes a utility function for social preferences under risk in the model a single parameter captures a preference for equality of opportunity i e equality of exante expected payoffs relative to equality of outcome i e equality of ex post payoffs in a deterministic environment the model reduces to the model of fehr and schmidt 1999 the model is consistent with recent experiments on probabilistic dictator games

managerial bonuses and subordinate mistreatment abstract can performance bonuses increase the likelihood that managers coerce their subordinates into exerting high levels of effort when doing so promotes neither efficiency nor equity we consider a laboratory setting in which managers compete to obtain a large bonus at the end of the experiment and the probability of obtaining it depends partly on the effort exerted by the subordinates we find that managers are more than twice as likely to punish subordinates exerting fair levels of effort if they compete for individual bonuses than when there are no bonuses this is not the case when they compete for pooled bonuses giving managers discretionary power over how to share them with their subordinates as most subordinates willingly exert maximal effort a model in which individuals are assumed to care about equity captures subordinates behavior well managers willingness to coerce subordinates into exerting unfairly high levels of effort on the other hand cannot be readily accounted for by any of the existing models of social preferences

detecting imbalances in house prices what goes up must come down i suggest a toolkit of four bubble detection methods that can be used to monitor developments in house prices these methods are applied to us finnish and norwegian data for the united states all measures unanimously suggest a bubble in the early to mid 2000s whereas current us house prices are found to be aligned with economic fundamentals one of the measures indicates imbalances in finland while there are no signs of a bubble in norway i find that large parts of the us house price bubble can be explained by the sharp increase in capital inflows and the extension of loans to the subprime mortgage market

global imbalances and financial fragility the united states is currently engulfed in the most severe financial crisis since the great depression the crisis was triggered by the crash in the real estate bubble and amplified by the extreme concentration of risk in a highly leveraged financial sector conventional wisdom is that both the bubble and the risk concentration were the result of mistakes in regulatory policy an expansionary monetary policy during the boom period of the bubble and failure to reign in the practices of unscrupulous lenders in this paper we argue that while correct in some dimensions this story misses two key structural factors behind the securitization process that supported the real estate boom and the corresponding lever age first over the last decade the us has experienced large and sustained capital inflows from foreigners seeking us assets to store value caballero emmanuel farhi and pierre olivier gourinchas 2008 second especially after the nasdaq tech bubble and bust excess world savings have looked predominantly for safe debt investments this should not be surprising because a large amount of the capital flow into the us has been from foreign central banks and governments that are not expert investors and are merely looking for a store of value krishnamurthy and annette vissing jorgenson 2008 in this paper we develop a stylized model that captures the essence of this environment the model accounts for three facts observed during the boom and bust phases of the current crisis first during a period of good shocks which we interpret as the period up to the end

generalized expected utility analysis of risk aversion with state dependent preferences in this paper the author develops measures of absolute risk aversion for preference relations on risky prospects that are state dependent and are representable by frechet differentiable nonlinear functionals a comparative statics analysis of optimal air travel insurance coverage illustrates the usefulness of the proposed measures it is also demonstrated that the analytical framework described above is consistent with the purchase of air travel insurance even in circumstances where expected utility theory is not copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

preferences for flexibility and randomization under uncertainty an uncertainty averse agent prefers betting on an event whose probability is known to betting on an event whose probability is unknown such an agent may randomize his choices to eliminate the effects of uncertainty for what sort of preferences does a randomization eliminate the effects of uncertainty to answer this question we investigate an agent s preferences over sets of acts we axiomatize a utility function through which we can identify the agent s subjective belief that a randomization eliminates the effects of uncertainty jel d11 d81

challenges of existing in a market as a small low quality producer this paper explores the strategy of a small firm entering a monopolist s market thereby creating a duopoly market the small firm avoids competing with the larger incumbent firm by producing a lower quality product at a lower price the model here establishes an equilibrium under a specific set of assumptions and examines how exogenous factors affect prices qualities and profits although the strategy might allow the firm to enter and earn a profit the market conditions may make this position much less desirable to that of the large firm for several reasons in the case explored here where tastes for the product are uniformly distributed the small firm s profit is about six percent of that of the larger firm the smaller firm is more severely threatened by the entrance of a third firm furthermore even if the smaller firm can cut costs its position is not well suited for exploiting such increases in efficiencies

distributional preferences in probabilistic and share contests we analyze nash equilibria of probabilistic and share contests where players have distributional preferences if players are sufficiently similar distributional preferences create multiple equilibria for the case of only mildly heterogeneous players equilibrium effort can be lower as well as higher than effort exerted by players with selfish preferences these findings can explain the following three anomalies observed in empirical tests of probabilistic and share contests the large variance of effort levels overspreading individual spending that exceeds the nash equilibrium prediction overspending and aggregate spending that exceeds the value of the prize overdissipation if players are sufficiently heterogeneous the game has a unique equilibrium that is more egalitarian than the selfish nash equilibrium it turns out that the less talented competitor may win the larger share of the prize if his inequality aversion is sufficiently strong we analyze how the equilibria evolve if the number of players becomes larger and how sequential moves influence behavior two new insights follow from the analysis of the sequential move game first sequential moves act as a coordination device in case of multiple simultaneous equilibria and second inequality aversion of the more egalitarian player can be used as a commitment device for low effort this effect can reverse the conventional wisdom that the underdog should lead

product competition in microprocessors there have been some striking recent developments in the theory of spatial and product competition but relatively few empirical studies see however shaw 1982 a and b this paper is an attempt to assess the empirical usefulness of these developments drawing on the history of product competition in microprocessors over the period 1971 81 in particular our interest centres on attempts to introduce a role for what have been called agglomeration economies 1 that is mutual external economies accruing to two or more producers selling similar products in a recent survey graitson 1982 suggested that this particular development would provide theoretical models of special empirical relevance and the evidence presented here though by no means conclusive tends to support that view the paper is in five parts section i gives a brief review of some of the relevant developments in spatial and product competition theory section ii gives a brief account of how the wide variety of microprocessors will be classified for the purposes of this study section iii describes the history of developments in microprocessors over the period 1971 to 1981 and section iv assesses the theoretical developments in the light of this evidence finally section v summarises the main points of the paper

reputation transmission without benefit to the reporter a behavioral underpinning of markets in experimental focus reputation is a commonly cited check on opportunism but it is often unclear what motivates an agent to report another s behavior when it is easy for the aggrieved individual to move on in a sharply focused laboratory experiment we find that many cooperators pay to report a defecting partner without the possibility of pecuniary benefit when this has the potential to deprive the latter of future gains and to help his next partner we illustrate how a social preference can explain such costly reporting and also discuss evidence for a role of emotions jel c91 d03 d63

vickrey auctions in the theory of expected utility with rank dependent probabilities abstract when decision makers maximize expected utility with rank dependent probabilities and the object being auctioned is a risky prospect then with independent private value vickrey auctions lose their demand revealing property moreover they might be non pareto optimal

housing really is the business cycle what survives the lessons of 2008 09 the downturn of 2008 09 has confirmed that i housing is the single most critical part of the u s business cycle ii the proper conduct of monetary policy needs to be cognizant that choices made at one point in time affect the options later and iii the best time to intervene in the housing cycle is when the volume of building is above normal and growing more so what was different this time was the rapid and substantial decline in home prices

can group incentives alleviate moral hazard the role of pro social preferences abstract incentivizing unobservable effort in risky environments such as in insurance credit and labor markets is vital as moral hazard may otherwise cause significant welfare losses including the outright failure of markets ensuring incentive compatibility through state contingent contracts between principal and agent however is undesirable for risk averse agents we provide a theoretical intuition on how pro social preferences between agents in a joint liability group contract can ensure incentive compatibility two independent large scale behavioral experiments framed in an insurance context support the hypotheses derived from our theory in particular effort decreases when making agents payoff less state dependent but this effect is mitigated with joint liability in a group scheme where agents are additionally motivated by pro social concerns activating strategic motives slightly increases effort further particularly in non anonymous groups with high network strength the results support existing evidence on joint liability groups and further suggest that even if peer pressure to ensure effort provision is absent such group policies can improve efficiency when agents are pro social

failure of blackwell s theorem under machina s generalization of expected utility analysis without the independence axiom abstract considerable evidence suggests that the independence axiom of expected utility theory is not empirically supported in response machina has generalized expected utility theory in such a way that the independence axiom is not required most of the basic concepts and results of expected utility theory still hold under machina s generalization however blackwell s theorem a fundamental result in information economics fails to hold under machina s generalization of expected utility theory without the independence axiom

correlation misperception in choice we present a decision theoretic analysis of an agent s understanding of the interdependencies in her choices we provide the foundations for a simple and flexible model that allows the misperception of correlated risks we introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her possibly misspecified beliefs

bargaining and boldness abstract we study a multiperson bargaining problem with general risk preferences through the use of shaked s game of cycling offers with exogenous breakdown if preferences are smooth then as the risk of breakdown vanishes the limiting outcome is one in which bargainers are equally marginally bold where a bargainer s marginal boldness measures his willingness to risk disagreement in return for a marginal improvement in his position under smoothness any ordinal nash solution is an equally marginally bold outcome however unlike the concept of the ordinal nash solution a unique equally marginally bold outcome exists in natural cases in particular if all bargainers have risk averse preferences of the rank dependent expected utility type for these preferences the equally marginally bold outcome maximizes a bargaining power adjusted asymmetric nash product where the degree of asymmetry is determined by the disparity in the marginal valuation of certainty among bargainers journal of economic literature classification numbers c72 c78 d81

an empirical model of product design and pricing strategy abstract using the hedonic approach as a point of departure this paper develops an empirical model for analyzing product design and pricing strategies the model focuses on a multi product firm in a differentiated product market it identifies criteria for optimal design and pricing for the firm s several products given the firm s production costs the prices and designs of competing products and given consumer tastes the model is demonstrated with a real world application to the microcomputer industry

interaction between housing prices and household borrowing the finnish case abstract employing time series econometrics this study shows that there has been a significant two way interaction between housing prices and housing loan stock in finland since the financial liberalization in the late 1980s before the financial deregulation the interaction was substantially weaker furthermore housing appreciation has a notable positive impact on the outstanding consumption loan stock it appears that there is no similar relationship between stock prices and credit understanding the two way interaction between housing prices and credit is of importance since the interdependence is likely to augment boom bust cycles in the economy and increase the fragility of the financial sector

house prices and credit constraints making sense of the us experience most us house price models break down in the mid 2000s due to the omission of exogenous changes in mortgage credit supply associated with the sub prime mortgage boom from house price to rent ratio and inverted housing demand models previous models lack data on credit constraints facing first time home buyers incorporating a measure of credit conditions the cyclically adjusted loan to value ratio for first time buyers into house price to rent ratio models yields stable long run relationships more precisely estimated effects reasonable speeds of adjustment and improved model fits

econometric regime shifts and the us subprime bubble using aggregate quarterly data for the period 1975 q1 2010 q4 i find that the us housing market changed from a stable regime with prices determined by fundamentals to a highly unstable regime at the beginning of the previous decade my results indicate that these imbalances could have been detected with the aid of real time econometric modeling with reference to stiglitz s general conception of a bubble i use the econometric results to construct two bubble indicators which clearly demonstrate the transition to an unstable regime in the early 2000s the indicators are shown to granger cause a set of coincident indicators and financial in stability measures finally it is shown that the increased subprime exposure during the 2000s can explain the econometric breakdown i e the housing bubble may be attributed to the increased borrowing to a more risky segment of the market copyright 2013 john wiley sons ltd

cumulative prospect theory option returns and the variance premium the variance premium and the pricing of out of the money otm equity index options are major challenges to standard asset pricing models we develop a tractable equilibrium model with cumulative prospect theory cpt preferences that can overcome both challenges the key insight is that the variance premium can be written as the expected return on a portfolio of otm call and put options and the probability weighting feature of cpt can explain the puzzlingly low returns observed for these options using gmm on a sample of u s index option returns between 1996 and 2010 we show that the cpt model ts well observed option prices and therefore the variance premium in a dynamic setting probability weighting and time varying equity return volatility combine to match the observed time series pattern of the variance premium

betrayal aversion evidence from brazil china oman switzerland turkey and the united states comment in a series of binary choice problems we investigate how a chooser s risk taking changes when others share in their personal risk either equally or unequally we find that when the safe option yields inequality the risky option is taken significantly more often on the other hand the inequality resulting from the risky choice does not affect risk taking we also find that choosers tend to be less risk averse in a one person context compared to when the risk also affects the payoff of another c72 d81 z13

making book against oneself the independence axiom and nonlinear utility theory an individual with known preferences over lotteries can be led to accept random wealth distributions different from his initial endowment by a sequential process in which some uncertainty is resolved and he is offered a new lottery in place of the remaining uncertainty this paper examines the restrictions that can be placed on an individual s preferences by axioms that stipulate that such a process not be able to generate a new wealth distribution that is prima facie inferior to the original the relationship of these axioms to the independence axiom of von neumann and morgenstern and to the quasi convexity of preferences in the wealth distribution are explored

bargaining with a residual claimant an experimental study we conduct an experiment of two player bargaining in which the payo to one player is subject to ex post risk while the other player receives a xed payment eectively making the player exposed to risk a residual claimant contrary to intuition recent theoretical work argues that exposure to risk may actually be benecial to the residual claimant and we test this in a controlled lab experiment our results suggest that asymmetric exposure to risk creates dierent self serving notions of fairness for the two types of players which leads to bargaining conict and even disagreements residual claimants are able to extract a larger share of the pie when bargaining over a risky distribution moreover some residual claimants actually do better in an expected utility sense by being exposed to risk however contrary to the theoretical prediction it is the comparatively less risk averse residual claimants who appear to benet the most through their exposure to risk in a subsequent study where residual claimants are able to choose between a less risky or a more risky distribution over which to bargain few choose the riskier distribution except when the possibility of an ex pose fair split exists consistent with our earlier results the relatively less risk averse residual claimants are more likely to choose the riskier distribution

ambiguity and excuse driven behavior in charitable giving a donation may have ambiguous costs or ambiguous benefits in a laboratory experiment we show that individuals use this ambiguity strategically as a moral wiggle room to behave less generously without feeling guilty such excuse driven behavior is more pronounced when the costs of a donation rather than its benefits are ambiguous however the importance of excuse driven behavior is comparable under ambiguity and under risk individuals exploit any type of uncertainty as an excuse not to give regardless of the nature of this uncertainty

disappointment and dynamic consistency in choice under uncertainty the central proposition of disappointment theory is that an individual forms expectations about uncertain prospects and that if the actual consequence turns out to be worse than or better than that expectation the individual experiences a sensation of disappointment or elation generating a decrement or increment of utility which modifies the basic utility derived from the consequence by incorporating a simple disappointment elation function into a model of individual choice many observed violations of conventional expected utility axioms including violations of savage s sure thing principle and the isolation effect can be predicted and defended as rational and dynamically consistent behaviour

does willful ignorance deflect punishment an experimental study abstract this paper studies whether people can avoid punishment by remaining willfully ignorant about possible negative consequences of their actions for others we employ a laboratory experiment using modified dictator games in which a dictator can remain willfully ignorant about the payoff consequences of his decision for a receiver a third party can punish the dictator after observing the dictator s decision and the resulting payoffs on the one hand willfully ignorant dictators are punished less if their actions lead to unfair outcomes than dictators who reveal the consequences before implementing the same outcome on the other hand willfully ignorant dictators are punished more than revealing dictators if their actions lead to fair outcomes we conclude that willful ignorance can circumvent blame when unfair outcomes result but that the act of remaining willfully ignorant is itself punished regardless of the outcome models of procedural fairness combining ex ante and ex post fairness qualitatively predict the observed punishment pattern

product proliferation in characteristics space the uk fertiliser industry in recent years a number of theoretical papers have addressed both the positive and normative aspects of the problem of how competitive products may be located in characteristics space the major theoretical antecedents have been hotelling s analysis of spatial competition 6 chamberlin s analysis of product differentiation 1 2 and lancaster s goods characteristics theory of demand 7 unfortunately there has been little corresponding empirical analysis two approaches in the theoretical analysis seem to have predominated firstly the examination of the welfare implications of product variety offered in equilibrium conditions 2 and secondly the dynamics of product competition using the spatial competition analogy 3 this paper which adopts the second approach uses an adaptation of lancaster s goods characteristics framework it examines the process of product competition in the uk agricultural fertiliser market the first and second sections briefly outline the main features of the goods characteristics and spatial competition theories and the uk fertiliser market respectively the third section contains the empirical analysis

the economics of product variety a survey demand for variety may arise from a taste for diversity in individual consumption and or from diversity in tastes even when each consumer chooses a single variant the full degree of variety potentially demanded will not in general be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants the economics of product variety consists essentially in analysing the effect of this balance in different situations and comparing the degree of product variety for different market structures with each other and with the optimum the survey commences with the work on market structures with single product firms generalized monopolistic competition tracing modern developments in both the chamberlinian and hotelling traditions the latter has been particularly fruitful due to the expansion of the original locational ideas into virtual spaces in product characteristics the emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures including strategic market preemption although most work has been in a full information context there have been advances in product variety under imperfect information either by consumers to properties of the firms products or firms as to consumers demands

payoff inequity reduces the effectiveness of correlated equilibrium recommendations we examine theoretically and experimentally how individuals willingness to follow third party recommendations in 2 2 games is affected by payoff asymmetry we consider six versions of battle of the sexes recommendations imply monetary payoffs that are equal ex ante but unequal ex post so although following recommendations constitutes a nash equilibrium under standard preferences sufficiently inequity averse players can rationally disobey a recommendation that would lead to a very unfavourable payoff distribution as long as the cost of doing so is not too large our theoretical model incorporates inequity aversion along with level k reasoning our main experimental result is consistent with the model as either payoff asymmetry increases or the cost of disobeying an unfavourable recommendation decreases subjects are more likely to disobey recommendations

the relationship between house prices and house purchase loans the spanish case abstract this paper looks at recent developments in house purchase loans and house prices in spain and the linkages between them it aims at identifying deviations of these variables from their equilibrium levels and for this purpose we estimate a vector error correction model the results show that both variables are interdependent in the long run and that both variables were above their equilibrium level by the end of the sample period 2009 q1 the paper also offers insight into how overvaluation overindebtedness in house prices can lead to a false sense of no overindebtedness house prices overvaluation

unequal uncertainties and uncertain inequalities an axiomatic approach abstract in this paper we provide an axiomatic characterization of social welfare functions for uncertain incomes our most general result is that a small number of reasonable assumptions regarding welfare orderings under uncertainty rule out pure ex ante as well as pure ex post evaluations any social welfare function that satisfies these axioms should lie strictly between the ex ante and the ex post evaluations of income distributions we also provide an axiomatic characterization of the weighted average of the minimum and the maximum of ex post and ex ante evaluations

vertical product differentiation with entry abstract this paper examines the non cooperative behaviour of established firms that compete in product quality and prices while foreseeing the effects of their rivalry on the decisions made by the later entrants we prove an existence and uniqueness of the equilibrium and show that the dominant firms engage in maximal product differentiation i e select the highest and lowest technologically feasible qualities later entrant however always selects an intermediate quality moreover we show that the equilibrium configuration is identical to that generated by perfect foresight equilibrium in a model of sequential entry furthermore the profits earned by each firm are ranked in the same order as the qualities implifying that the later entrant despite being the last mover ends up with higher profits and larger market share than one of the incumbents

food scares in an uncertain world we develop a model that explains the stylized facts of food scares an immediate and sharp decline in consumption of the product followed by a slow and frequently partial recovery of demand after the scare passes the model is used in conjunction with the natural experiment afforded by the mad cow crisis to elicit empirical information on decision makers perception of uncertainty our theoretical and quantitative results suggest that observed behavior is consistent with sharp changes in beliefs and the presence of knightian uncertainty as measured by the degree of imprecision in our model

risk aversion in the theory of expected utility with rank dependent probabilities expected utility with rank dependent probability theory is a model of decision making under risk where the preference relations on the set of probability distributions is represented by the mathematical expectation of a utility function with respect to a transformation of the probability distributions on the set of outcomes this paper defines based on g teaux differentiability measures of risk aversion for such preferences which characterize the relation more risk averse and applies these measures to the analysis of unconditional and conditional portfolio choice problems

fairness risk preferences and independence impossibility theorems the most widely used economic models of social preferences are specified only for certain outcomes there are two obvious methods of extending them to lotteries if we do so by expected utility theory so that the independence axiom is satisfied our results imply that the resulting preferences do not exhibit ex ante fairness if we do so by replacing certain outcomes with their expected utilities for each individual so that individual risk preferences are preserved then ex ante fairness may be preserved but neither the independence axiom nor ex post fairness is satisfied both ex ante and ex post fairness can be satisfied but then the individual does not have well defined preferences over own lotteries