risk preferences are not time preferences balancing on a budget line comment in a recent experimental study of intertemporal risky decision making andreoni and sprenger 2012 find that subjects exhibit a preference for intertemporal diversification which is inconsistent with discounted expected utility theory it was claimed that their results are also at odds with models involving probability weighting such as rank dependent utility and cumulative prospect theory here we demonstrate however that rank dependent probability weighting explains intertemporal diversification if decision makers care about portfolio risk moreover we provide a unified account of all of andreoni and sprenger s key findings

nonpecuniary benefits to farming implications for supply response to decoupled payments we develop a household model wherein farmers allocate labor to maximize utility from leisure consumption and nonpecuniary benefits from farming the model shows that farmers with decreasing marginal utility of income respond to higher decoupled payments by decreasing off farm labor and increasing farm labor resulting in greater agricultural output we then estimate the difference between farm and off farm returns to labor using data from three nationally representative farm household surveys the finding of a large on farm off farm wage differential provides compelling evidence of substantial nonpecuniary benefits from farming

allais paradox in the small three small payoff variants on the famous allais paradox questions were presented to 202 subjects for each variant the probabilities were the same as in the original allais questions only the payoffs differed in one variant the payoffs were proportional reductions of the original allais payoffs for this variant for both hypothetical and real payoffs the allais paradox behavior largely disappeared in favor of simple expected value maximization a second variant involved negative payoffs results were roughly the same the third variant involved payoffs for which the lotteries had nearly the same expected values something closer to allais paradox behavior was found for this variant when payoffs were real but not when payoffs were hypothetical overall behavior was closer to simple expected value maximization when payoffs were real than when they were hypothetical

lottery dependent utility in this paper we propose a model for decision making under risk that is capable of predicting empirically observed preference patterns that have been found to be incompatible with the expected utility model the model departs from the classical expected utility model by allowing utilities to depend on the lottery the dependence of utilities on the lottery being evaluated is achieved by restricting the utility measure to a convenient parametric family of functions the idea then is to use each lottery to determine a specific parameter value thus characterizing the utility function for each particular lottery the expected value of this lottery dependent utility function provides the overall measure of preference the model retains the properties of transitivity stochastic dominance and continuity it also permits types of analyses such as exploitation of basic attitudes toward risk through risk aversion properties that have been found useful in decision theory the primary use of our model is in descr

the capitalization of coupled and decoupled cap payments into land rental rates this article explores the extent to which payments under the common agricultural policy cap are capitalized into land rents in ireland with implications for the transfer efficiency of such payments since subsidies may not benefit targeted recipients if they are capitalized into input prices capitalization in the years preceding and following the decoupling of agricultural support payments from agricultural production is explored in the period prior to decoupling direct support pillar 1 payments were highly capitalized into irish agricultural rents 67 90 cents per euro of subsidies while in the post decoupling period capitalization appears to have declined somewhat

framing the allais paradox as a daily farm decision problem tests and explanations the well known allais paradox is reformulated as a daily farm decision problem only 26 of the farmers exhibit violations of the expected utility hypothesis moreover the tendency for violation decreases with the farm operator s education experience and family size no effects of the farm main crop or its scale were detected finally when taking into account the possibility of choice errors we find that the violation rate is statistically insignificant

unilateral altruism may be beneficial a game theoretic illustration abstract this paper examines when unilateral altruism may be beneficial the example of two person 2 2 noncooperative games is used to develop an intuitive criterion namely that a role reversal would result in the two persons behavior changing in a similar direction

nonparametric test of the expected utility hypothesis a nonparametric test of the expected utility hypothesis is developed in this paper the expected utility hypothesis is shown to hold if there exists a feasible solution to a particular system of linear inequalities furthermore when a feasible solution exists boundaries on the coefficient of absolute risk aversion can be calculated explicitly the test is applied to data on land allocations modeled as choices over lottery sets results contrary to those obtained in many laboratory experiments show that in most cases the expected utility hypothesis cannot be rejected

prohibition of riba and gharar a signaling and screening explanation abstract the emergence of islamic banks ibs with sharia boards that restrict the set of permissible products and enforce prohibition of riba and gharar raises basic questions about how ib clients benefit when choosing from a restricted menu of possibly higher cost cash flows norms that restrict choice sets or impose otherwise harsh requirements would seem to act as a barrier to religious identification by raising costs for ib clients contrary to this intuition our model demonstrates that premium costs associated with restrictions on the set of financing options considered to be sharia compliant provide a signaling and screening technology that benefits ib clients who are highly pious by revealing what would otherwise remain private information about the intensity of religious piety this signaling technology simultaneously provides a screening service that enables high piety types to separate themselves and concentrate both social and commercial interactions with others who are similarly pious iannaccone 1992 demonstrates a rationale for harsh norms as a mechanism for reducing free riding in the supply of club goods in contrast our model shows that piety can be signaled by the act of choosing to become an ib client and bearing the costs of its restricted choice set and premium pricing for otherwise identical cash flows signaling and screening provide a new rationalization for prohibition of riba and gharar as a stable institution signaling piety is especially valuable in environments where piety is uncertain and otherwise difficult for others to observe the model predicts that ibs sharia compliance criteria will tend to be stricter and ib premiums larger in places where the proportion of highly pious muslims is small

an inferred valuation method although estimates of people s values for public goods are often needed to conduct cost benefit analysis existing value elicitation methods are prone to a number of well documented biases we argue that some of these biases result because people derive utility from the act of saying they are willing to pay for a good to counteract this phenomenon we consider an approach that asks people to predict or infer others values for a good instead of asking people to state their own value both a conceptual model and results from a laboratory experiment lend support for the new approach

quantifying the allais paradox abstract weighted linear utility explains allais paradox yet preserves much of the analytic structure of standard expected utility this paper identifies the two crucial parameters of weighted linear utility risk aversion and eccentricity eccentricity is a measure of how much the decision maker systematically distorts the probabilities in choosing between lotteries

the supply of off farm labor a random coefficients approach a joint model of off farm labor decisions for farm operator and spouse is presented attention is given to operator and spouse participation decisions as well as associated problems of multiple sample selectivity biases two stage fixed and random coefficient methods corrected for possible selectivity biases are used to estimate supply function parameters results indicate that supply function parameters are random variation in important supply parameters is investigated results also illustrate the importance of spouse decisions on off farm labor supply function structure

do firms maximize evidence from professional football this paper examines a single narrow decision the choice on fourth down in the national football league between kicking and trying for a first down as a case study of the standard view that competition in the goods capital and labor markets leads firms to make maximizing choices play by play data and dynamic programming are used to estimate the average payoffs to kicking and trying for a first down under different circumstances examination of actual decisions shows systematic clear cut and overwhelmingly statistically significant departures from the decisions that would maximize teams chances of winning possible reasons for the departures are considered

the common consequence effect testing a unified explanation of recent mixed evidence abstract the common consequence effect is perhaps the most investigated violation of expected utility theory and yet no single generalised expected utility model convincingly organises the experimental data this paper reports a test of a modified version of expected cardinality specific utility theory with boundary effects neilson w s 1992 economics letters 39 275 278 which can explain some recent mixed evidence without recourse to subjective probability weighting models the results do not convincingly support the boundary effect hypothesis and neither support the more usual probability weighting arguments but do indicate instability in preferences largely consistent with event splitting effects

on private charity and altruism if well off persons were to voluntarily engage in significant transfers of income to the poor the rationale and need for recourse to state measures to redistribute income and impose taxes would weaken it is thus not surprising that a good many social scientists have been fascinated by private charity which they usually explain is motivated by altruism this note looks further into the role of altruism in private charity demonstrating first that altruism can be consistent with no transfers from the altruists to the poor and second that a special form of altruism a dose of mutual altruism amongst the altruists suffices to ensure charitable transfers reference to means designed to bring about mutual altruism and their role in a number of empirical contexts concludes this note prior to proceeding along these lines a brief remark seems appropriate a recurrent and appropriate reference is made to the act of transferring as such for example roberts 1984 points out that if altruists receive utility from the act of transferring then private charity would be positive in equilibrium emphasis added this may but need not be the case two well off altruists can exchange some given income rather than transfer income to the poor unless we admit that the act of receipt of income creates suffering which is highly unrealistic such reciprocal transfers imply that the altruists end up with exactly the same income plus the satisfaction derived from having engaged in an enjoyable act this pareto dominates transfers to the poor that people indeed derive joy from such exchanges can be readily observed my inviting you to lunch this week your inviting me to lunch next week is more enjoyable than both of us sharing the bill at each of the two lunches or my sending you a bouquet for your birthday your sending me one for mine is more gratifying than each of us buying flowers for his own birthday 2

the happy farmer the effect of nonpecuniary benefits on behavior i test empirically the relationship between farmers perceptions of the nonpecuniary benefits from farming with a variety of field behaviors such as disinvestment production diversification and off farm labor market participation results suggest that nonpecuniary benefits have an important influence on a wide range of farmer activities while costs and returns are clearly important i suggest that nonpecuniary benefits may make some choices more attractive than others which may be more rewarding financially

why suicide terrorists get educated and what to do about it this paper tries to reconcile the observed fact that suicide terrorists have a relatively high education level with rationality it brings out the conditions under which potential students choose to acquire some education in a rational choice model where this yields a non zero probability of blowing up the resulting human capital in a terrorist attack the comparative statics of the rational expectations equilibrium of this model demonstrate how economic development on the one hand and repression on the other hand might reduce terrorism under some parameter restrictions

assessing public priorities for experiment station research contingent value and public preferences for agricultural research laws concerning government accountability mandate that agencies weigh constituent interests in setting priorities this study extends literature on the value of research by considering the public s stated preferences for scientist effort allocated across an agricultural experiment station s research portfolio over 75 of respondents expressed a willingness to pay exceeding 20 per household for allocations of at least 139 scientist months the mean household is willing to pay about 25 for a 25 increase in effort marginal analysis identifies topic areas where an additional scientist month provides above or below average benefits the distribution of effort across research topics significantly affects respondents values

theoretical foundations for sticky wages abstract the paper compares three different types of theoretical explanation of sticky wages they are implicit contracts efficiency wage models and insider outsider models it then reconsiders keynes rationale for sticky wages which focuses on relative wage issues finally the paper considers possible directions for future research

opportunism and ngos entrepreneurship and green north south transfers abstract through the lens of entrepreneurship this paper applies the new institutional economics to examine two case studies of environmental nongovernmental organizations ngos in latin america to clarify their political economic roles southern ngos that rely on northern donors are viewed as entrepreneurial economic entities producing international public goods these nonprofit ngos take their place alongside for profit firms as contributors to economic production employment institutional innovation and technology transfer the theoretical framework proposed assumes that self interested behavior coexists with loyalty commitment and altruism as well as opportunism

choice under uncertainty problems solved and unsolved ffifteen years ago the theory of choice under uncertainty could be considered one of the success stories of economic analysis it rested on solid axiomatic foundations it had seen important breakthroughs in the analytics of risk risk aversion and their applications to economic issues and it stood ready to provide the theoretical underpinnings for the newly emerging information revolution in economics 1 today choice under uncertainty is a field in flux the standard theory is being challenged on several grounds from both within and outside economics the nature of these challenges and of our profession s responses to them is the topic of this paper

how much do farmers value their independence a farmer s decision to contract or produce independently depends on the distribution of income and the nonpecuniary attributes associated with both business arrangements the benefits to growers from contracting such as risk reduction may be overestimated if the nonpecuniary benefits enjoyed by independent producers such as the right to make management decisions and own the commodity produced are not accounted for this study uses data from a u s national survey of hog producers to estimate 1 the difference in expected net returns between contracting and independent production 2 the premium a representative farmer would pay for the risk reduction provided by a contract and 3 the premium a farmer would pay for the nonpecuniary benefits associated with independent production results indicate that growers have a strong preference for autonomy with moderately risk averse growers being willing to pay more for the attributes of independent production than they would for the risk reducing benefits of a contract

nonlinear preferences and two stage lotteries theories and evidence nonlinear preferences models are theories for choice under risk which have weakened in one way or another the independence axiom of expected utility in this paper we present an experiment designed to discriminate between some basic ideas in this literature we tested the betweenness axiom a weaker form of independence against an alternative which predicts that indifference curves in the probabilities simplex are convex along the lower edge and concave along the hypotenuse we also checked whether preferences among single stage lotteries as those revealed by our test of betweenness should be extended to preferences among two stage lottery via the classical reduction of compound lottery axiom or via the certainty equivalent mechanism copyright 1994 by royal economic society

loyalty based portfolio choice i evaluate the effect of loyalty on individuals portfolio choice using a unique dataset of retirement contributions i exploit the statutory difference that in 401 k plans stand alone employees can invest directly in their division while conglomerate employees must invest in the entire firm including all unrelated divisions consistent with loyalty employees of stand alone firms invest 10 percentage points 75 more in company stock than conglomerate employees support is also found using variation in loyalty between different groups of employees across and within firms the cost to employees of loyalty is large amounting to nearly a 20 loss in retirement income

a mixed fan hypothesis and its implications for behavior toward risk in order to accommodate recent experimental evidence which questions the validity of the fanning out hypothesis a mixed fan hypothesis is proposed the hypothesis combines fanning out for the less preferred region of probability triangles with fanning in for the more preferred region and is defined over general probability spaces the relevance of fanning hypotheses for economic analysis is illustrated with an asset demand example and a new method for testing for fanning behavior is proposed

three variants on the allais example three variants on the famous allais example were administered to student subjects two variants involved small changes in the example yet greatly diminished the qualitative behavior known as the allais paradox the third variant is almost a direct test of daniel kahneman and amos tversky s certainty effect against mark machina s fanning out hypothesis the results favor the certainty effect over the fanning out hypothesis for at least the case of straight line indifference curves copyright 1989 by american economic association

how control system design influences performance misreporting this paper investigates reporting honesty when managers have monetary incentives to overstate their performance we argue that managers who report about their performance will take into account how their report affects their peers i e other managers at the same hierarchical level this effect depends on the design of the organization s control system in particular on the reward structure and the information policy regarding individual performance reports the reward structure determines if peers monetary payoff is increased or decreased when managers claim a higher level of performance the information policy determines if managers will be able to link individual peers to their reports and affects the nonmonetary costs of breaking social norms we present the results of a laboratory experiment as predicted we find that participants are more likely to overstate their performance if this increases the monetary payoff of others than if their reported performance decreases others monetary gains in addition overstatements are lower under an open information policy where each individual s reported performance is made public compared to a closed information policy where participants only learn the average performance of the other participants our findings have several important implications for management accounting research and practice