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Intertemporal choices involve a great heterogeneity among discount mechanisms. In order to catch such diversity, we introduce an axiomatic Subjective Discounted Utility (SDU) model based on separability assumption. The originality of the SDU model rests on the fact that decision makers discount subjective periods, namely decision weights can be described as standard discount functions of time perception. In particular, our model appears as a generalization of both exponential and hyperbolic approaches.
This note studies conditions which allow to maintain a non-expected utility representation (Max-min expected utility and Choquet expected utility), dynamic consistency and consequentialism in an atemporal and purely subjective framework. By contrast with a dynamic set-up, where consistency can be reached with non-expected utility models, we show that both Maxmin expected utility and Choquet expected utility degenerate into an expected utility representation.
We consider future cash flows that are contingent both on dates in time and on uncertain states. The decision maker (DM) values the cash flows according to its decision criterion: Here the payoffs’ expectation with respect to a capacity measure. The subjective measure grasps the DM’s behaviour in front of the future, in the spirit of de Finetti’s (1930) and of Yaari’s (1987) Dual Theory in the case of risk. Decomposition of the criterion into two criteria that represent the DM’s preferences on uncertain payoffs and time contingent payoffs are derived from Ghirardato’s (1997) results. Conditional Choquet integrals are defined by dynamic consistency requirements and conditional capacities are derived, under some conditions on information. In contrast with other models referring to dynamic consistency, ours doesn’t collapse into a linear one because it violates a weak version of consequentialism.
Since Enron and the ruin of thousands of its employees, employee ownership is harshly criticized. Investing savings in employer’s stock would be equivalent to bet on only one asset. Moreover, employee ownership’s debated efficiency would not justify employers to grant company stock to their employees. Still, employee ownership is put in place by thousands of companies and withhold by millions of employees throughout the world. This paper considers a moral hazard setting where a risk neutral entrepreneur grants company stock to its risk averse employee as an incentive. We show that there is an optimal transfer of employee ownership that satisfies employee’s risk preference and has an incentive effect. We thus bring about rational argument in favor of employee ownership.
Le Dominateur de Diodore Kronos donne un ensemble de prémisses contradictoires, l'une d'entre elles correspondant ? un principe d'incertitude. Il conclue ainsi à une certaine forme de nécessité. L'objet de cet article est d'examiner si le cadre utilisé pour décrire l'incertitude dans la théorie économique est soumis à l'aporie de Diodore, si les hypothèses retenues en économie de l'incertain correspondent aux prémisses contradictoires. Cette question dépasse le contexte économique car elle touche ? la théorie des probabilités. Pour cela, nous reprendrons l'écriture du Dominateur en logique des modalités et en donnons une démonstration directe. Nous exposons ensuite une modélisation qui permet de rapprocher les modalités du formalisme traditionnel de l'incertitude et réécrivons ainsi les prémisses de Diodore. Il est alors possible de retrouver l'aporie dans une version probabiliste et de conclure sur une éventuelle contradiction dans cette approche.
Real option theory, used for valuing investments or solve optimal time schedule problems, is based on the existence of a relevant underlying security. However, in most applied works, there is no obvious asset connected with the risk to value. One of the main difficulty, in applying real option theory to public investments, is to determine a relevant underlying asset. In this paper, we propose a method for constructing a virtual underlying security as a portfolio of marketed assets, optimizing the functional correlation coefficient. We propose two examples using real data concerning copper industry.Classification JEL : C13, C14, D81, G12, G13.
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No abstract is available for this item.
Public decision-making and risk assessment in such fields as environmental risk, industrial risk, disaster insurance, and health and unemployment insurance require dynamics to be taken into account and generally give rise to controversy. In order to use real options theory for these fields, we propose methods for constructing a virtual underlying security on the basis of a portfolio of traded assets. Real options theory will take care of dynamic aspects of the decision-making process while construction of the virtual underlying security takes account of various levels of controversy.
Choquet integrals and capacities play a crucial role in modern decision theory. Comonotony is a central concept for these theories because the main property of a Choquet integral is its additivity for comonotone functions. We consider a Choquet integral representation of preferences showing uncertainty aversion (pessimism) and propose axioms on time consistency which yield a candidate for conditional Choquet integrals. An other axiom characterizes the role of comonotony in the use of information. We obtain two conditioning rules for capacities which amount to the well-known Bayes' and Dempster-Schafer's updating rules. We are allowed to interpret both of them as a lack of confidence in information in a dynamic extension of pessimism. Copyright Kluwer Academic Publishers 2001