List of Abstracts

1- Aloisio Araujo (FGV & IMPA) : General Equilibrium with Uncertainty Seeking Preferences (joint with Alain Chateauneuf, Juan Pablo Gama-Torres, and Rodrigo Novinski).

More and more economists find both empirical and experimental evidence of economic behavior that is well beyond classical economics. In particular, empirical evidence (Jullien and Salanié (2000)), and experimental evidence (Kahneman and Tversky (1979)) supported the importance of Risk Loving, ambiguity loving and related behavior in economics. However, this type of preferences have not been analyzed in the general equilibrium literature with a finite number of agents. We show that the aggregate uncertainty of wealth, as well as some dominance of the endowment of the risk averters in the economy, play a role in the existence of Arrow-Debreu equilibria. This result can be extended to ambiguity in the sense of CEU, Smooth Ambiguity, Variational Preference and Prospect Theory. Finally, we illustrate numerically our result with some Prospect Theory decision makers with nonlinear distortions.

2- Lorenzo Bastianello (University of Paris 2) : Choquet expected utility across time without lotteries (joint with Jose Heleno Faro).

In this paper we axiomatise an inter-temporal version of the Choquet Expected Utility model. We recast Koopmans' Discounted Utility model in an ambiguous setting. A new axiom called comonotonic stationarity is proposed as a generalization of Koopmans' stationarity axiom. Under other standard axioms used in the theory of inter-temporal choice, a decision maker evaluates an ambiguous stream of income through the Choquet integral of discounted utilities. As a dividend, our framework allows us to axiomatize the Discounted Expected Utility model.

3- Gaetano Bloise (Yeshiva University) Unsecured debt and incomplete markets (joint with Herakles Polemarchakis and Yiannis Vailakis).

Conventional wisdom asserts that debt is unsustainable when not secured by collateral or by sanctions that creditors can exercise against debtors upon default. We instead argue that creditors can rely on the debtors’ mere reputation for repayment. When some risks are uninsurable, default carries the cost of reduced insurance opportunities when no further debt can be issued and this provides an implicit enforcement mechanism. We show the existence of a competitive equilibrium with self-enforcing debt and, in particular, we guarantee that trade occurs under a suitable hypothesis on primitives. In general, debt is not valued as a speculative bubble but fairly reflects future repayments.

4- Luciano de Castro (University of Iowa) : Dynamic Quantile Models of Rational Behavior (joint with Antonio F. Galvao).

This paper develops a dynamic model of rational behavior under uncertainty, in which the agent maximizes the stream of the future τ-quantile utilities, for τ ∈ (0, 1). That is, the agent has a quantile utility preference instead of the standard expected utility. Quantile preferences have useful advantages, such as robustness and ability to capture heterogeneity. Although quantiles do not have some of the useful properties of expectations, such as linearity and the law of iterated expectations, we show that the quantile preferences are dynamically consistent. We also show that the corresponding dynamic problem yields a value function, via a fixed-point argument, and establish its concavity and differentiability. The principle of optimality also holds for this dynamic model. Additionally, we derive the corresponding Euler equation. Empirically, we show that one can employ ex- isting quantile regression methods for estimating and testing the economic model directly from the stochastic Euler equation. Thus, the parameters of the model can be estimated using known econometric techniques and interpreted as structural objects. In addition, the methods provide microeconomic foundations for quantile regression estimation. To illustrate the developments, we construct an asset-pricing model and estimate the elasticity of intertemporal substitution and discount factor parameters across the quantiles. The results provide evidence of heterogeneity in these parameters.

5- Anujit Chakraborty (University of California at Davis) : Present Bias.

Present bias is the inclination to prefer a smaller present reward to a larger later reward, but reversing this preference when both rewards are equally delayed. This paper investigates and characterizes the most general class of present-biased temporal preferences. We show that any present-biased preference has a max-min representation, which can be cognitively interpreted as if, the decision maker considers the most conservative present equivalents in the face of uncertainty about future tastes. We also discuss empirical anomalies which temporal models like beta-delta or hyperbolic discounting cannot account for, but the proposed general representation can accommodate.

6- Alain Chateauneuf (Paris School of Economics - University of Paris 1) : Financial Markets with Hedging Complements (joint with Bernard Cornet).

In this paper we show that for a large class of arbitrage-free financial markets with bid/ask spreads said to be normalized, namely those with a list of independent marketed assets(IND) , and another one being frictionless and satisfying a simple"convex cone"condition (CC) the hedging price under a weak arbitrage-free assumption (PAF) can be written as the sum of two terms. The first one is a generalized convex Choquet integral, in the sense that, up to an isomorphism V it is a (standard) convex Choquet integral with a tractable explicit formula. The second term is modular since it is separable in each of its variables.We prove that the notion of generalized choquet integral coincides with the notion of Choquet integral on Riesz space as introduced by Cerreia-Vioglio, Maccheroni, Marinacci, Montrucchio 2015,. This equivalence allows us to deduce the Put-Call parity property of the hedging price as a direct consequence.Furthermore it is proved that for such markets the marketed securities are hedging complements which can be regarded related to assets in the same way as perfect complementarity on preferences and utility functions, which dates back to Fisher, Pareto, and Edgeworth, according toSamuelson1974, are usually assumed to illustrate super modularity.

7- Federico Echenique (California Institute of Technology) : Preference Identification (joint with Chris Chambers and Nicolas Lambert).

An experimenter seeks to learn a subject’s preference relation. The experimenter produces pairs of alternatives. For each pair, the subject is asked to choose. We argue that, in general, large but finite data do not give close approximations of the subject’s preference, even when countably infinite many data points are enough to infer the preference perfectly. We then provide sufficient conditions on the set of alternatives, preferences, and sequences of pairs so that the observation of finitely many choices allows the experimenter to learn the subject’s preference with arbitrary precision. The sufficient conditions are strong, but encompass many situations of interest. And while preferences are approximated, we show that it is harder to identify utility functions. We illustrate our results with several examples, including expected utility, and preferences in the Anscombe-Aumann model.

8- Christian Gollier (Toulouse School of Economics) : Aversion to Risk of Regret and Preference for Positively Skewed Risks.

We assume that the ex-post utility of an agent facing a menu of lotteries depends upon the actual payoff together with its forgone best alternative, thereby allowing for the ex-post emotion of regret. An increase in the risk of regret is obtained when the actual payoff and its forgone best alternative are statistically less concordant in the sense of Tchen (1980). The aversion to any such risk of regret is thus equivalent to the supermodularity of the bivariate utility function. We show that more regret-risk-averse agents are more willing to choose the risky act in a one-risky-one-safe menu, in particular when the payoff of the risky choice is highly skewed. This is compatible with the "possibility effect" that is well documented in prospect theory. Symmetrically, we define the aversion to elation-risk that can prevail when the ex-post utility is alternatively sensitive to the forgone worst payoff. We show that elation-risk-seeking is compatible with the "certainty effect". We finally show that regret-risk-averse and elation-risk-seeking people behave as if they had rank-dependent utility preferences with an inverse-S shaped probability weighting function that reproduces estimates existing in the literature.

9- Thai Ha-Huy (University of Evry, University Paris-Saclay) : A not so Myopic Axiomatization of Discounting (joint with Jean-Pierre Drugeon).

This article builds an axiomatization of inter-temporal trade-offs that makes an explicit account of the distant future and thus encompasses motives related to sustainability, transmission to offsprings and altruism. The focus is on separable representations and the approach is completed following a decision-theory index based approach that is applied to infinite dimension streams. This enlightens the limits of the commonly used fat tail intensity requesites : they are supersed and replaced by an axiomatic approach to optimal myopy that in its turn precedes the determination of optimal discount. The reference to robust orders and pessimism-like axioms allows for determining tractable representations for the indexes. The argument is finally shown to provide a novel understanding of temporal biases.

10- Martin Kaae Jensen (University of Leicester) : Limited Rationality and Macroeconomic Theory (joint with Daron Acemoglu).

This paper shows that certain standard theorems in long-run macroeconomic models hold evenwhen consumers make mistakes, have time-inconsistent objectives, limited ability to optimize, and/or exhibit systematic biases. This extends an idea dating back to Becker (1962) from partial to general equilibrium.

11- Mamoru Kaneko (Waseda University) : Expected Utility Theory with Probability Grids and Preferential Incomparabilities.

We reformulate expected utility theory by introducing probability grids and a cognitive bound; that is, we restrict permissible probabilities only to decimal (binary) fractions of finite depths up to a given cognitive bound. We separate the measurement of utility from a pure alternative from its extension to lotteries involving more risks. Our theory is constructive, from the viewpoint of the decision maker, taking the form of mathematical induction with the measurement as the induction base and the extension as the induction step. The preference relation has a lot of incomparabilities with a small cognitive bound, but as the cognitive bound gets less restrictive, there are less incomparabilities, and in limit, our theory determines a complete preference relation over the set of exactly measured pure alternatives, which is considered classical expected utility theory. We give a complete characterization of incomparabilties, and a representation theorem in terms of a 2-dimensional vector-valued utility function. We exemplify the theory with one experimental result reported by Kahneman-Tversky.

12- Michał Lewandowski (Warsaw School of Economics): Range and Sign Dependent Utility for Risk and Time (joint with Manel Baucells and Krzysztof Kontek).

We propose the range and sign dependent utility (RSU) model to evaluate risky prospects, possibly with temporal delay. General prospects are decomposed into loss and gain prospects and for each of these a generalized Expected Utility holds with utility depending on a common loss (respectively, gain) frame. For gambles with at most one gain and one loss, the model agrees with Cumulative Prospect Theory CPT). For loss (gain) prospects evaluated with a broad loss (gain) frame the model agrees with Expected Utility (EU). For delayed prospects, the model becomes an extension of the Probability and Time Tradeoff models to multiple outcomes. We provide an axiomatic characterization of the model based on trade-off consistency approach and frame-dependent EU axioms. RSU is able to explain the four-fold pattern of risk preference, the Samuelson paradox and, if we allow for reframing, the Allais paradoxes and the preference reversal phenomenon. For temporal choices, RSU explains decreasing impatience and magnitude effects in discounting. The model is dual to CPT in that it weights cumulative scaled utilities instead of cumulative probabilities. It is simpler to use since it does not require sorting of outcomes.

13- Fabio Maccheroni (Bocconi University) : Multinomial logit processes and preference discovery: inside and outside the black box (joint with Simone Cerreia-Vioglio, Massimo Marinacci and Aldo Rustichini).

We provide both an *axiomatic* and a *neuropsychological* characterization of the dependence of choice probabilities on deadlines in the softmax form, with time independent utility function and time dependent accuracy parameter. The softmax model (also known as Multinomial Logit Model or Power Luce Model) is the most widely used model of preference discovery in all fields of decision making, from Quantal Response Equilibria to Discrete Choice Analysis, from Psychophysics and Neuroscience to Combinatorial Optimization. Our axiomatic characterization of softmax permits to empirically test its descriptive validity and to better understand its conceptual underpinnings as a theory of agents rationality. Our neuropsychological foundation provides a computational model that may explain softmax emergence in human multialternative choice behavior and that naturally extends the dominant Diffusion Model paradigm of binary choice.

14- Jawwad Noor (Boston University) : Associative Foundations for Beliefs.

An agent's beliefs over a state space are represented in terms of a network of associations between various sources of uncertainty that underlie the states. The model is characterized in terms of its implications for belief updating. The key implication of the model is that there exists a relationship between updating bias and correlation, as these are two ways in which associations are expressed in beliefs. The model accommodates a range of existing evidence from the psychology literature on judgement under uncertainty.

15- John Quah (John Hopkins University) : Revealed Price Preference: theory and stochastic testing (joint with Rahul Deb, Yuichi Kitamura, and Joerg Stoye).

We develop a model of demand where consumers trade-off the utility of consumption against the disutility of expenditure. This model is appropriate whenever a consumer’s demand over a strict subset of all available goods is being analyzed. Data sets consistent with this model are characterized by the absence of revealed preference cycles over prices. The model is readily generalized to the random utility setting, for which we develop nonparametric statistical tests. Our application on national household consumption data provides support for the model.

16- Yann Rebille (University of Nantes) : QuasiLinear Utility and decision making under Risk and under Uncertainty.

We provide an axiomatization of preferences that are representable. byquasilinear utility function . Representations are given on convex sets and on product spaces with affine and additively separable value functions respectively. Then, applications of quasilinear utility functions to decision making under risk and under uncertainty are considered. The classical models of von Neumann and Morgenstern (1944), Savage (1954) and Anscombe and Aumann (1963) are studied in this context. Preference representations with expected value and subjective expected value are obtained. Related notions such as risk aversion and subjective risk aversion are handled. We introduce illiquidity aversion and subjective illiquidity aversion in these settings. Allais paradoxes (ratio effet, common outcome effect) are given an interpretation in this framework.

17- Gerelt Tserenjigmid (Virginia Polytechnic Institute) : The imbalanced Luce model (joint with Matthew Kovach).

We develop a random choice model in which a decision maker divides the alternatives she faces into two groups, where one group is favored and thus she is more likely to choose alternatives in that group relative to alternatives in the non-favored group. We show that this seemingly specific decision making procedure in fact generalizes the Luce (1959) model, and nests versions of salience theory, reference-dependent models, and consideration set models. Moreover, the model can be characterized by two simple weakenings of independence from irrelevant alternatives (IIA).

18- Peter Wakker (Erasmus University of Rotterdam) : Generalizing Many Theorems on Concave/Convex Utility or Weighting Functions for Time and Uncertainty (joint with Jingni Yang). This paper shows that convexity of preference has stronger implications for weighted utility models than had been known hitherto, both for utility and for weighting functions. Our main theorem derives concave utility from convexity of preference on the two-dimensional comonotonic cone, without presupposing con- tinuity. Using this seemingly marginal result, we then obtain the most appeal- ing and general axiomatizations of concave/convex utilities and decision weights for many decision models. Included are: risk aversion in expected utility, opti- mism/pessimism in rank-dependent utility and prospect theory, uncertainty aver- sion in Choquet expected utility, ambiguity aversion in the smooth model, and inequality aversion in utilitarianism. We provide some surprising relations be- tween well-known conditions, e.g.: in Yaariís dual theory, convexity/concavity in (ìhorizontalî) outcome mixing are not only dual, but also logically equivalent, to concavity/convexity in (« vertical ») probability mixing.

19- Craig S. Webb (University of Manchester) : Time Consistency and Reversed-S Discounting.

A decision maker is time consistent when earlier expressed preferences are not later reversed. This paper considers a local version of time consistency. It is shown that various specifications of hyperbolic discounting reduce to exponential discounting when they are locally time consistent. Piecewise exponential discount functions are compatible with local time consistency. A three-stage version is used to capture “reverse-S” discounting - increasing impatience followed by decreasing impatience. The model is given an axiomatic foundation using a weaker form of time consistency.

20- Lukasz Wozny (Warsaw School of Economics) : Supermodular Comparative Statics (joint with Pawel Dziewulski).

An important set of questions in economics concern how changes in the model's exogenous parameters (income, wealth, productivity, distortions, information, etc.) impact individual choices and market outcomes. In this paper, we develop a theory of supermodular comparative statics that addresses this set of issues. Specifically, we show ordinal and cardinal conditions one should impose on the optimization problem so that its solution is a supermodular function. We illustrate application to industrial organization, supermodular stochastic orders and extensive form games with strategic complements.