optimal dynamic pricing for perishable assets with nonhomogeneous demand we consider a dynamic pricing model for selling a given stock of a perishable product over a finite time horizon customers whose reservation price distribution changes over time arrive according to a nonhomogeneous poisson process we show that at any given time the optimal price decreases with inventory we also identify a sufficient condition under which the optimal price decreases over time for a given inventory level this sufficient condition requires that the willingness of a customer to pay a premium for the product does not increase over time in addition to shedding managerial insight these structural properties enable efficient computation of the optimal policy numerical studies are conducted to show the revenue impact of dynamic price policies price changes are set to compensate for statistical fluctuations of demand and to respond to shifts of the reservation price for the former our examples show that using optimal dynamic optimal policies achieves 2 4 7 3 revenue improvement over the optimal single price policy for the latter the revenue increase can be as high as 100 these results explain why yield management has become so essential to fashion retailing and travel service industries

the non linear link between electricity consumption and temperature in europe a threshold panel approach this paper investigates the relationship between electricity demand and temperature in the european union we address this issue by means of a panel threshold regression model on 15 european countries over the last two decades our results confirm the non linearity of the link between electricity consumption and temperature found in more limited geographical areas in previous studies by distinguishing between north and south countries we also find that this non linear pattern is more pronounced in the warm countries finally rolling regressions show that the sensitivity of electricity consumption to temperature in summer has increased in the recent period

pricing and capacity rationing for rentals with uncertain durations we consider a rental firm with two types of customers contract customers pay fixed prenegotiated rental fees and expect a high quality of service walk in customers have no contractual relations with the firm and are shopping for price given multiple contract and walk in classes the rental firm has to decide when to offer service to contract customers and what fees to charge walk in customers for service we formulate this rental management problem as a problem in stochastic control and characterize optimal policies for managing contract and walk in customers we also consider static myopic controls that are simpler to implement and we analytically establish conditions under which these policies perform optimally complementary numerical tests provide a sense of the range of systems for which myopic policies are effective

risk preferences around the world we present results from a large scale international survey on risk preferences conducted in 53 countries in all countries we find on average an attitude of risk aversion in gains and of risk seeking in losses the degree of risk aversion shows significant cross country differences moreover risk attitudes in our sample depend not only on economic conditions but also on cultural factors as measured by the hofstede dimensions individualism and uncertainty avoidance the data may also serve as an interesting starting point for further research on cultural differences in behavioral economics data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1869 this paper was accepted by peter wakker decision analysis

ambiguity aversion and comparative ignorance decisions under uncertainty depend not only on the degree of uncertainty but also on its source as illustrated by ellsberg s observation of ambiguity aversion in this article we propose the comparative ignorance hypothesis according to which ambiguity aversion is produced by a comparison with less ambiguous events or with more knowledgeable individuals this hypothesis is supported in a series of studies showing that ambiguity aversion present in a comparative context in which a person evaluates both clear and vague prospects seems to disappear in a noncomparative context in which a person evaluates only one of these prospects in isolation

resource prices and planning horizons abstract this paper shows that a seemingly simple assumption that agents use a rolling planning horizon can reconcile the puzzling long run price dynamics of exhaustible resources such as oil gas and metals a rolling horizon has the effect of removing the scarcity consideration of resource owners when stocks are large hence extraction will be non decreasing and resource prices non increasing for a long period of time and there will be no connection between the price growth and the interest rate in line with the trends of a majority of exhaustible resources in the last century a calibration of the model to the oil market yields a price which closely fits the gradually falling real oil price after wwii and the sharply increasing price after 1998 this suggests that while long run scarcity was not an important parameter on the oil market in the 20th century it has been important in shaping the oil price from around 1998 and onwards

violence and risk preference experimental evidence from afghanistan we investigate the relationship between violence and economic risk preferences in afghanistan combining i a two part experimental procedure identifying risk preferences violations of expected utility and specific preferences for certainty ii controlled recollection of fear based on established methods from psychology and iii administrative violence data from precisely geocoded military records we document a specific preference for certainty in violation of expected utility the preference for certainty which we term a certainty premium is exacerbated by the combination of violent exposure and controlled fearful recollections the results have implications for risk taking and are potentially actionable for policymakers and marketers

capacity management in rental businesses with two customer bases we consider the allocation of capacity in a system in which rental equipment is accessed by two classes of customers we formulate the problem as a continuous time analogue of the one shot allocation problems found in the more traditional literature on revenue management and we analyze a queueing control model that approximates its dynamics our investigation yields three sets of results first we use dynamic programming to characterize properties of optimal capacity allocation policies we identify conditions under which complete sharing in which both classes of customers have unlimited access to the rental fleet is optimal next we develop a computationally efficient aggregate threshold heuristic that is based on a fluid approximation of the original stochastic model we obtain closed form expressions for the heuristic s control parameters and show that the heuristic performs well in numerical experiments the closed form expressions also show that in the context of the fluid approximation revenues are concave and increasing in the fleet size finally we consider the effect of the ability to allocate capacity on optimal fleet size we show that the optimal fleet size under allocation policies may be lower the same as or higher than that under complete sharing as capacity costs increase allocation policies allow for larger relative fleet sizes numerical results show that even in cases in which dollar profits under complete sharing may be close to those under allocation policies the capacity reductions enabled by allocation schemes can help to lift profit margins significantly

magnitude time and risk differ similarly between joint and single evaluations arguably all choice options involve three basic attributes magnitude outcome size time of occurrence and probability of occurrence and are evaluated in one of two basic evaluation modes je joint evaluation involving comparison of multiple options and se single evaluation without comparison this research explores how reactions to the three basic attributes and their associated functions utility time discounting and probability weighting vary between the two basic evaluation modes nine studies tapping diverse contexts yield two general results first for all these attributes people are more sensitive to variations near endpoints zero magnitude no delay and 0 or 100 probability than in other regions and this differential sensitivity is more pronounced in se than in je second when faced with options involving a trade off between magnitude and time delay or between magnitude and probability risk people are both more delay averse and more risk averse in se than in je

a theory of disappointment aversion an axiomatic model of preferences over lotteries is developed it is shown that this model is consistent with the allais paradox includes expected utility theory as a special case and is only one parameter beta richer than the expected utility model allais paradox type behavior is identified with positive values of beta preferences with positive beta are said to be disappointment averse it is shown that risk aversion implies disappointment aversion and that the arrow pratt measures of risk aversion can be generalized in a straight forward manner to the current framework copyright 1991 by the econometric society

when risk is weird unexplained transaction features lower valuations we define transactions as weird when they include unexplained features that is features not implicitly explicitly or self evidently justified and propose that people are averse to weird transactions in six experiments we show that risky options used in previous research paradigms often attained uncertainty via adding an unexplained transaction feature e g purchasing a coin flip or lottery and behavior that appears to reflect risk aversion could instead reflect an aversion to weird transactions specifically willingness to pay drops just as much when adding risk to a transaction as when adding unexplained features holding transaction features constant adding additional risk does not further reduce willingness to pay we interpret our work as generalizing ambiguity aversion to riskless choice the online supplement is available at https doi org 10 1287 mnsc 2017 2868 and http osf io fzjuw this paper was accepted by yuval rottenstreich judgment and decision making

the uncertainty effect when a risky prospect is valued less than its worst possible outcome expected utility theory prospect theory and most other models of risky choice are based on the fundamental premise that individuals choose among risky prospects by balancing the value of the possible consequences these models therefore require that the value of a risky prospect lie between the value of that prospect s highest and lowest outcome although this requirement seems essential for any theory of risky decision making we document a violation of this condition in which individuals value a risky prospect less than its worst possible realization this demonstration which we term the uncertainty effect draws from more than 1000 experimental participants and includes hypothetical and real pricing and choice tasks as well as field experiments in real markets with financial incentives our results suggest that there are choice situations in which decision makers discount lotteries for uncertainty in a manner that cannot be accommodated by standard models of risky choice from the time of bernoulli on it has been common to argue that a individuals tend to display aversion to the taking of risks and b that risk aversion in turn is an explanation for many observed phenomena in the economic world arrow 1971 p 90

waiting or acting now the effect on willingness to pay of delivering inherent uncertainty information in choice experiments abstract this paper analyzes the effect of inherent uncertainty on the willingness to pay wtp for a policy aimed at reducing expected climate change impacts to do this it relates outcome uncertainty to the probability of occurrence of one of these impacts within a given time horizon unlike the existing studies this paper links outcome uncertainty to the uncontrollable component of environmental uncertainty derived from the stochastic nature of an ecosystem s behavior results show that the wtp for the policy in the presence of uncertainty does not decrease compared to the scenario where climate change impacts are assumed to occur with certainty this suggests individuals are adopting a precautionary attitude when stating their wtp thus the paper provides economic justification for preventive measures in highly uncertain contexts however findings are not conclusive with respect to the influence of the degree of uncertainty on the support for such measures

certain and uncertain utility a new perspective on financial innovation we show that discontinuous preference over certain and uncertain outcomes as in andreoni and sprenger 2009 2012 have interesting implications for financial innovations it motivates financial innovations aimed at carving riskless assets from risky ones if improbable risks are neglected then excess carving may take place with disastrous subsequent consequences

on portfolio choice with savoring and disappointment we revisit the model proposed by gollier and muermann gollier c muermann a 2010 optimal choice and beliefs with ex ante savoring and ex post disappointment management sci 568 1272 1284 hereafter gm in the gm model for a given lottery agents form anticipated expected payoffs and the set of possible anticipations is assumed to be exogenously fixed we propose sets of possible anticipations that are endogenously determined this permits us to compare and evaluate in a consistent manner lotteries with different supports and to revisit the portfolio choice problem we obtain new conclusions and interesting insights our extended model can rationalize a variety of empirically observed puzzles such as a positive demand for assets with negative expected returns preference for skewed returns and underdiversification of portfolios this paper was accepted by rakesh sarin decision analysis

lost in the mail a field experiment on crime crime in the mail sector can hamper the development of elec tronic markets we use a field experiment to detect crime and measure its differential impacts we subtly and realistically manipulate the content and information available in mail sent to households and detect high levels of shirking and stealing eighteen percent of the mail never arrived at its des tination and even more was lost if there was even a slight hint of something additional inside the envelope our study demonstrates that privatization has been unable to extricate moral hazard and that crime is strategic and not equally distributed across the population

an experiment on risk taking and evaluation periods does the period over which individuals evaluate outcomes influence their investment in risky assets results from this study show that the more frequently returns are evaluated the more risk averse investors will be the results are in line with the behavioral hypothesis of myopic loss aversion which assumes that people are myopic in evaluating outcomes over time and are more sensitive to losses than to gains the results have relevance for the equity premium puzzle and also for the marketing strategies of fund managers

procedures for eliciting time preferences we study three procedures to elicit attitudes toward delayed payments the becker degroot marschak procedure the second price auction and the multiple price list the payment mechanisms associated with these methods are widely considered as incentive compatible thus if preferences satisfy procedure invariance which is also widely and often implicitly assumed they should yield identical time preference distributions we find instead that the monetary discount rates elicited using the becker degroot marschak procedure are significantly lower than those elicited with a multiple price list we show that the behavior we observe is consistent with an existing psychological explanation of preference reversals

valuing money and things why a 20 item can be worth more and less than 20 the study of risky decision making has long used monetary gambles to study choice but many everyday decisions do not involve the prospect of winning or losing money monetary gambles as it turns out may be processed and evaluated differently than gambles with nonmonetary outcomes whereas monetary gambles involve numeric amounts that can be straightforwardly combined with probabilities to yield at least an approximate expectation of value nonmonetary outcomes are typically not numeric and do not lend themselves to easy combination with the associated probabilities compared with monetary gambles the evaluation of nonmonetary prospects typically proves less sensitive to changes in the probability range inside the extremes of certainty and impossibility which among other things can yield preference reversals generalizing on earlier work that attributed similar findings to the role of affect in the evaluation process rottenstreich y c k hsee 2001 money kisses and electric shocks an affective psychology of risk psych sci 12 3 185 190 we attribute the observed patterns to a fundamental difference in the evaluation of monetary versus nonmonetary outcomes potential pitfalls in the use of monetary gambles to study choice are highlighted and implications and future directions are discussed

a context dependent model of the gambling effect this paper presents a context dependent theory of decision under risk the relevant contextual factor is the presence of a riskless lottery in a preference comparison the theory only deviates from expected utility if the set of options contains both riskless and risky lotteries the main motivation for the theory is to explain the gambling effect contrary to previous theories of the gambling effect the present theory is consistent with stochastic dominance it can however violate transitivity the theory allows for a decomposition of the interaction between risk aversion and gambling aversion and thereby extends the classical arrow pratt measure of risk aversion

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

field experiments on the anchoring of economic valuations i introduction take the last three digits of your social security number ssn turn those numbers into a dollar value i e if your numbers are 462 then they provide a value of 462 consider whether you would be willing to pay that dollar amount for a first edition of j r r tolkien s the hobbit now how much would you actually pay for a first edition original copy a stylized result from laboratory experiments in economics and psychology is that the answer to the latter valuation question can be strongly influenced by the dollar amount computed at the start 1 critics of neoclassical theory have argued that the influence of uninformative anchors such as the transformed ssn refutes the notion that decision makers preferences are predefined consistent and stable instead they are constructed during the process of choice bettman luce and payne 1998 hoeffler and ariely 1999 slovic 1995 a natural conclusion one might draw from studies of anchoring is that decisions may be influenced by irrelevant circumstances and optimization principles do not apply the laboratory evidence consonant with anchoring effects is considerable tversky and kahneman 1974 make a seminal contribution implementing a protocol similar to the one described above to examine general knowledge questions 2 furnham and boo 2011 provide a recent review of the literature and identify more than 25 studies that report significant anchoring effects substantive areas investigated include general knowledge questions epley and gilovich 2006 tversky and kahneman 1974 probability estimates wright and anderson 1989 legal judgments englich and mussweiler 2001 forecasting switzer and sniezek 1991 and valuation and purchasing decisions ariely loewenstein and prelec 2003 taken together the results suggest strong effects from anchoring protocols even in areas where subjects have significant experience yet the importance of anchoring for economic outcomes remains an open question one reason is that research goals and methods differ across the disciplines of psychology and economics croson 2005 hertwig and ortmann 2001 plott 1996 3 fumham and boo 2011 note that drawing generalizable conclusions from the existing anchoring studies is difficult as many involve undergraduate students engaged with topics they are unlikely to encounter in field settings their observation is consistent with the criticism of the ecological validity of many studies made by gerd gigerenzer and colleauges gigerenzer et al 2008 discussed in our footnote 2 while the results of these studies may help distinguish among competing causal claims about the anchoring process they are less relevant for understanding the potential for anchors to affect market equilibria further many of the studies lack meaningful incentives and we believe that economists are justifiably circumspect about results that may merely reflect mistakes made by unmotivated subjects consistent with this view is the idea that with appropriate incentives and feedback anchoring effects should diminish and behavior more closely match predictions from neoclassical models 4 recent attempts to examine the relevance of anchoring for economic outcomes closely follow ariely loewenstein and prelec 2003 alp hereafter who find statistically and economically significant effects of anchors on willingness to pay wtp for common consumer goods and on willingness to accept wta for unpleasant sounds and tastes bergman et al 2010 and fudenberg levine and maniadis 2012 flm hereafter replicate the consumer goods portion of the alp study with mixed results bergman et al 2010 find significant anchoring results consistent with the earlier work although the magnitude of the effect is smaller implementing an auxiliary protocol they find also that anchoring effects diminish with cognitive ability flm 2012 attempt to anchor both wtp and wta and find no evidence of anchoring in the wtp treatment

insurance contracts when individuals greatly value certainty results from a field experiment in burkina faso abstract in discussing the paradoxical violation of expected utility theory that bears his name maurice allais noted that people tend to greatly value certainty allais observation implies that people will undervalue insurance relative to the predictions of expected utility theory because as conventionally constructed insurance offers an uncertain benefit in exchange for a certain cost pursuing this logic we implemented insurance games with cotton farmers in burkina faso on average farmer willingness to pay for insurance increases significantly when a premium rebate framing is used to render both costs and benefits of insurance uncertain we show that the impact of the rebate frame on the willingness to pay for insurance is driven by those farmers who exhibit a well defined discontinuous preference for certainty a concept that we adapt from the u v model of utility and measure with a novel behavioral experiment given that the potential impacts of insurance for small scale farmers are high and yet demand for conventionally framed contracts is often low the insights from this paper suggest welfare enhancing ways of designing insurance for low income farmers

the motivating uncertainty effect uncertainty increases resource investment in the process of reward pursuit can a reward of an uncertain magnitude be more motivating than a reward of a certain magnitude this research documents the motivating uncertainty effect and specifies when this effect occurs people invest more effort time and money to qualify for an uncertain reward e g a 50 chance at 2 and a 50 chance at 1 than a certain reward of a higher expected value e g a 100 chance at 2 this effect arises only when people focus on the process of pursuing a reward not when they focus on the outcome the reward itself when the focus is on the process of reward pursuit uncertainty generates positive experience such as excitement and hence increases motivation four studies involving real rewards lend support to the motivating uncertainty effect this research carries theoretical implications for research on risk preference and motivation and practical implications for how to devise cost efficient consumer incentive systems

temperature and seasonality influences on spanish electricity load abstract deregulation of the spanish electricity market in 1998 and the possible listing of electricity or weather derivative contracts have encouraged the study of the relationship between electricity demand and weather in spain in this paper a transfer function intervention model is developed for forecasting daily electricity load from cooling and heating degree days the influence of weather and seasonality is proved and is significant even when the autoregressive effects and the dynamic specification of the temperature are taken into account the estimated general model shows a high predictive power the results and information presented in this paper could be of interest for current users and potential traders in the deregulated spanish electricity market

do markets reveal preferences or shape them we contrast the proposition that markets reveal independently existing preferences with the alternative possibility that they may help to shape them using demand revealing experimental market institutions we separate the shaping effects of price cues from the effects of market discipline we find that individual valuations and prevailing prices are systematically affected by both exogenous manipulations of price expectations and endogenous but divergent price feedback these effects persist to varying degrees in spite of further market experience in some circumstances market experience may actually consolidate them we discuss possible explanations for these effects of uninformative price cues on revealed preferences

effects of system parameters on the optimal cost and policy in a class of multidimensional queueing control problems we consider a class of markov decision processes frequently employed to model queueing and inventory control problems for these problems we explore how changes in different system input parameter

killing hope with good intentions the effects of consolation prizes on preference for lottery promotions the present research examines how the inclusion of consolation or token prizes influences consumers valuation of a promotional lottery results from four experiments show that consolation prizes lower consumers expectations of winning the big prize their valuations of the lottery and their intentions to participate in the lottery because of the high likelihood of attaining the consolation prizes consumers shift their focus from the value of a big prize to the probability of attaining it this shift increases the weight given to the probability dimension and results in lowered valuations of the lottery the first two experiments demonstrate the effect in hypothetical and real choices in experiment 3 the authors propose and show a boundary condition for the effect in experiment 4 they conduct an exploratory test of the process they conclude with a discussion of the theoretical and managerial implications

strengthening state capabilities the role of financial incentives in the call to public service we study a recent recruitment drive for public sector positions in mexico different salaries were announced randomly across recruitment sites and job offers were subsequently randomized screening relied on exams designed to measure applicants intellectual ability personality and motivation this allows the first experimental estimates of i the role of financial incentives in attracting a larger and more qualified pool of applicants ii the elasticity of the labor supply facing the employer and iii the role of job attributes distance attractiveness of the municipal environment in helping fill vacancies as well as the role of wages in helping fill positions in less attractive municipalities a theoretical model guides each stage of the empirical inquiry we find that higher wages attract more able applicants as measured by their iq personality and proclivity towards public sector work i e we find no evidence of adverse selection effects on motivation higher wage offers also increased acceptance rates implying a labor supply elasticity of around 2 and some degree of monopsony power distance and worse municipal characteristics strongly decrease acceptance rates but higher wages help bridge the recruitment gap in worse municipalities

developments in non expected utility theory the hunt for a descriptive theory of choice under risk this article reviews recent developments in the economic theory of individual decision making under risk since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways considerable research effort has now been devoted to the project of developing a superior descriptive model following an overview of non expected utility theories which distinguishes between conventional and non conventional approaches the paper seeks to assess these alternative models in terms of empirical success using laboratory and field data and theoretical usefulness the closing sections reflect on some new directions emerging in this literature

incorporating outcome uncertainty and prior outcome beliefs in stated preferences stated preference studies tell respondents that policies create environmental changes with varying levels of uncertainty however respondents may include their own a priori assessments of uncertainty when making choices among policy options using a choice experiment eliciting respondents preferences for conservation policies under climate change we find that higher outcome uncertainty reduces utility when accounting for endogeneity we find that prior beliefs play a significant role in this cost of uncertainty thus merely stating objective levels of outcome uncertainty will not necessarily solve the problem of people valuing something differently from originally intended respondents prior beliefs must be accounted for

risk preferences are not time preferences risk and time are intertwined the present is known while the future is inherently risky this is problematic when studying time prefer ences since uncontrolled risk can generate apparently present biased behavior we systematically manipulate risk in an intertemporal choice experiment discounted expected utility performs well with risk but when certainty is added common ratio predictions fail sharply the data cannot be explained by prospect theory hyperbolic discounting or preferences for resolution of uncertainty but seem consistent with a direct preference for certainty the data suggest strongly a difference between risk and time preferences jel c91 d81 d91 understanding individual decision making under risk and over time are two foundations of economic analysis 1 in both areas there has been research to suggest that standard models of expected utility eu and exponential discounting are flawed or incomplete regarding time experimental research has uncovered evidence of a present bias or hyperbolic discounting frederick loewenstein and o donoghue 2002 regarding risk there are number of well documented departures from eu such as the allais 1953 common consequence and common ratio paradoxes an organizing principle behind expected utility violations is that they seem to arise as so called boundary effects where certainty and uncertainty are combined camerer 1992 harless and camerer 1994 and starmer 2000 indicate that violations of expected utility are notably less prevalent when all choices are uncertain this observation is especially interesting when considering decisions about risk taking over time in particular certainty and uncertainty are combined in intertemporal decisions the present is known and certain while the future is inherently risky this observation is problematic if one intends to study time preference in isolation from

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

pricing and design of differentiated services approximate analysis and structural insights we consider a model of a service system that delivers two nonsubstitutable services to a market of heterogenous users the first service is delivered subject to a guaranteed g processing rate and the second is a best effort be type service in which residual capacity not allocated to the guaranteed class isshared among be users users in turn are sensitive to both price and congestion related effects the service provider s objective is to optimally design the system so as to extract maximum revenues the design variables in this problem consist of a pair of static prices for the two services a policy that controls admission of g users into the system and the mechanism by which users are informed of the state of congestion in the system because these objectives are difficult to address using exact analysis we pursue approximations that are tractable and lead to structural insights specifically we first solve a deterministic relaxation of the original objective to obtain a fluid optimal solution that is subsequently evaluated and refined to account for stochastic fluctuations using diffusion limits we derive approximations that yield the following structural results 1 pricing rules derived from the deterministic analysis are almost optimal 2 the optimal operational regime for the system is close to heavy traffic and 3 real time congestion notification results in increased revenues numerical results illustrate the accuracy of the proposed approximations and validate the aforementioned structural insights

airline seat allocation with multiple nested fare classes this paper addresses the problem of determining optimal booking policies for multiple fare classes that share the same seating pool on one leg of an airline flight when seats are booked in a nested fashion and when lower fare classes book before higher ones we show that a fixed limit booking policy that maximizes expected revenue can be characterized by a simple set of conditions on the subdifferential of the expected revenue function these conditions are appropriate for either the discrete or continuous demand cases these conditions are further simplified to a set of conditions that relate the probability distributions of demand for the various fare classes to their respective fares the latter conditions are guaranteed to have a solution when the joint probability distribution of demand is continuous characterization of the problem as a series of monotone optimal stopping problems proves optimality of the fixed limit policy over all admissible policies a comparison is made of the optimal solutions

framing influences willingness to pay but not willingness to accept the authors show with real and hypothetical payoffs that consumers are willing to pay substantially less for a risky prospect when it is called a lottery ticket raffle coin flip or gamble than when it is labeled a gift certificate or voucher willingness to accept in contrast is not affected by these frames this differential framing effect is the result of an aversion to bad deals which causes buyers to focus on different aspects than sellers buyers willingness to pay is influenced by the extent to which a risky prospect s frame is associated with risk experiment 1 as well as the prospect s lowest but not highest possible outcome experiment 2 sellers willingness to accept in contrast is influenced by a prospect s lowest and highest possible outcomes but not by the risk associated with its frame experiments 2 and 3 the framing effect on willingness to pay is independent of the objective level of uncertainty experiment 4 and can lead to the uncertainty effect the findi

destructive effects of constructive ambiguity in risky times unclear bailout policy underinvestment and calls for greater responsibility by bankers are some of the observations from the recent financial crisis the paper explains underinvestment as an inefficient equilibrium under ambiguous bailout policy agents suffer from a lack of information about the insolvency resolution methods the beliefs of bankers regarding whether an insolvent bank is liquidated may differ from those of depositors even if bankers and depositors possess absolutely symmetric information about the economy this disrupts the flow of funds through the banking channel if the investment climate is characterized by high aggregate risk the paper suggests policy implications aimed at a reduction of the anxiety of agents and at aligning their beliefs to restore efficiency

reference dependent risk attitudes we use koszegi and rabin s 2006 model of reference dependent utility and an extension of it that applies to decisions with delayed consequences to study preferences over monetary risk because our theory equates the reference point with recent probabilistic beliefs about outcomes it predicts specific ways in which the environment influences attitudes toward modest scale risk it replicates classical prospect theory including the prediction of distaste for insuring losses when exposure to risk is a surprise but implies first order risk aversion when a risk and the possibility of insuring it are anticipated a prior expectation to take on risk decreases aversion to both the anticipated and additional risk for large scale risk the model allows for standard consumption utility to dominate reference dependent gain loss utility generating nearly identical risk aversion across situations

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

the fun and function of uncertainty uncertain incentives reinforce repetition decisions this research studies repetition decisions namely whether to repeat a behavior e g a purchase after receiving an incentive e g a discount can uncertainty drive repetition four experiments all involving real consequences for each individual participant document a counterintuitive reinforcing uncertainty effect individuals repeat a behavior more if its incentive is uncertain than if it is certain even when the certain incentive is financially better this effect is robust it holds in both lab and field settings and at both small and large magnitudes furthermore the experiments identify two theory driven boundary conditions for the reinforcing uncertainty effect the effect arises a only if the uncertainty is resolved immediately and not if the resolution of uncertainty is delayed and b only after not before one has engaged in repetitions these results support a resolution as reward account and cast doubt on other explanations such as reference dependent preferences this research reveals the hidden value of uncertain incentives and sheds light on the delicate relationship between incentive uncertainty and repetition decisions

are time preferences for risky outcomes riskless outcomes and commodities really different this paper suggests that part of the implied time subjective discount rate sdr collected by willingness to pay wtp is an immediate premium we offer a theoretical and experimental analysis of the gross sdr which consists of the immediate premium and the net sdr i e sdr less the immediate premium we find that the net sdr for an assured monetary payment is no different than the sdr for a lottery or usb stick however the gross sdr for the assured outcome is higher than the sdr for a lottery or the usb stick