This paper shows how expected utility shortcut can result in some adversary conclusion: excessive cost. It then demonstrates graphically how Grossman and Hart (GH) have twisted the agent's model to form the principal model. A complete principal-agent model is then introduced, and is proved to be...

Beliefs are a central determinant of behavior. Recent models assume that beliefs about or the anticipation of future consumption have direct utility-consequences. This gives rise to informational preferences, i.e., preferences over the timing and structure of information. Using a novel and...

The lessons I (Gana 2014) have learned from the vivid contrast between the mean and median fair values (Hayden and Platt 2009) of the game (Bernoulli 1738) underlying the St. Petersburg Paradox (SPP) are applied, by implicating the median, to modify two unidimensional poverty indices: the Sen...

Parametric and non-parametric risk aversion is often elicited through binary lotteries. Basing ourselves on recent evidence of the higher than theorized importance of skewness in decision making, we highlight in this paper that skewness might bias the result of risk aversion elicitation in two...

This paper describes an experiment designed to study the effect of aspiration levels on individual choices under risk.We observe preferences for prospects that offer various probabilities of achieving aspiration levels; the resulting choice patterns characterize a heuristic for reducing the...

Numerous experiments have demonstrated the possibility of attitude polarization. For instance, Lord, Ross & Lepper (1979) partitioned subjects into two groups, according to whether or not they believed the death penalty had a deterrent effect, and presented them with a mixed set of studies on...

Based on the correspondence between Paul Samuelson, Leonard Jimmie Savage, Milton Friedman and Jacob Marschak between May and September 1950, the article reconstructs the joint intellectual journey that led Samuelson to accept expected utility theory and Savage to revise his initial motivations...

Asset demand tests for Expected Utility have almost universally been implemented in contingent claim settings where markets are complete. However when markets are incomplete, these tests cannot be applied since contingent claim prices cannot be uniquely recovered from given asset prices and the...

Two experiments show that violations of expected utility due to ambiguity, found in general decision experiments, also affect belief aggregation. Hence we use modern ambiguity theories to analyze belief aggregation, thus obtaining more refined and empirically more valid results than traditional...

We work with a multi-period system where a finite number of agents need to share multiple monetary risks. We look for the solutions that are both Pareto efficient utility-wise and financially fair value-wise. A buffer enables the inter-temporal capital transfer. Expected utility is used to...