Individual and Social Decisions
Friday, Jan. 4, 2019 8:00 AM - 10:00 AM
- Chair: Bart Lipman, Boston University
Dynamic Quantile Models of Rational Behavior
AbstractThis 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. We provide an axiomatization of the recursive quantile preferences to motivate its use. Although quantiles do not have some of the helpful properties of expectations, such as linearity and the law of iterated expectations, we are able to establish all the standard results in dynamic models. Namely, we show that the quantile preferences are dynamically consistent, the corresponding dynamic problem yields a value function, via a fixed point argument, establish its concavity and differentiability and show that the principle of optimality holds. Additionally, we derive the corresponding Euler equation, which is well suited for using well-known quantile regression methods for estimating and testing the economic model. In this way, the parameters of the model can be interpreted as structural objects. Therefore, the proposed methods provide microeconomic foundations for quantile regression models. To illustrate the developments, we construct an asset-pricing model and estimate the discount factor and elasticity of intertemporal substitution parameters across the quantiles. The results provide evidence of heterogeneity in these parameters.
Freedom and Voting Power
AbstractThis paper develops the symmetric power order, a measure of voting power for multicandidate elections. The measure generalizes standard pivotality-based voting power measures for binary elections, such as Banzhaf power. At the same time, the measure is not based on pivotality, but rather on a measure of freedom of choice in individual decisions. Indeed, I use the symmetric power order to show that pivotality only measures voting power in monotonic elections, and is not a good measure in multicandidate elections. Pivotality only provides an upper bound on voting power. This result establishes a relation between voting power and strategyproofness.
Aggregate Risk and the Pareto Principle
AbstractAggregate Risk and the Pareto Principle
- D8 - Information, Knowledge, and Uncertainty
- D7 - Analysis of Collective Decision-Making