Utility
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Predicting elections from politicians’ faces
"... people’s assessments of relative competence predicted the outcome of Senate and Congressional races ...
We obtained facial competence ratings of 11 potential candidates for the Democratic Party nomination and of 13 for the Republican Party nomination for the 2008 U.S. Presidential election ..."   more

Principle of Uncertain Future
... The probability of a future event contains uncertainty ...
High probabilities will decrease
Phigh real < Phigh planned
Low probabilities can increase
Plow real possible > Plow planned
The present total probability of future events is incomplete
Σ Pplanned < 100%
Uniform solution:   of the underweighting high and the overweighting of low probabilities, of the Allais paradox, of risk aversion, of the equity premium puzzle, of the "fourfold pattern" paradox, of the incompleteness of systems of preferences, of ambiguity aversion, of the Ellsberg paradox, etc.   more

Oil Prices and the Euro-Dollar: Forecasting ...
"If oil exporters stabilize the purchasing power of their export revenues in terms of imports, exchange rate developments may contain information about oil price changes ...
We give evidence that using information on the US dollar/euro exchange rate (and its determinants) improves oil price forecasts significantly ..."   more

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Modeling Forecasting Planning

Forecasting items:   Predicting elections from politicians’ faces

Forecasting metadata:     Forecasting in the Presence of Uncertainty


Economics   News Events Reviews Rankings

news:     The Talmud On Transitivity ...

top's news:       Oil Prices and the Euro-Dollar: Forecasting ...(11)

top authors:     Stiglitz(1)   Shleifer(1)   Baum (1)  

top items:     ... mechanics of economic development (1)

reviews & analyses:     Inflation Dynamics

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Utility & Prospect & Decision Theories

Utility items news:     Strotz meets Allais ...
Solution of the Ellsberg paradox ...

Utility metadata news:     Utility of gambling II: ...
How Politicians Make Decisions ...


Utility reviews & analyses (more)

Is There A Plausible Theory ...

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Utility item events (more)

An economic index of riskiness
Robert J. Aumann and Roberto Serrano
Instituto Madrile?o de Estudios Avanzados (IMDEA) ...
Abstract     Text

Noise and Bias in Eliciting Preferences
John Hey, Andrea Morone and Ulrich Schmidt
Department of Economics, University of York
Abstract     Text

Principle of uncertain future and utility
Alexander Harin
University Library of Munich, Germany
Abstract     Text
About: ... the uncertainty pushes the probability value
back from the bounds to the middle of the range
(in a sense, similar to the action of vibrations, fluctuations)
Phigh real < Phigh planned
Plow real possible > Plow planned



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Utility metadata events (more)

Imprecision as an Account of the Preference Reversal Phenomenon
David J. Butler and Graham C. Loomes
American Economic Review    2007
Abstract
About: "... any successful descriptive theory
of choice and valuation will need to allow in some way for the
imprecision ..."



The Origin of Utility
Gianni De Fraja
C.E.P.R. Discussion Papers   2006
Abstract

Experienced Utility as a Standard of Policy Evaluation
Daniel Kahneman and Robert Sugden
Environmental & Resource Economics   2005
Abstract

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Utility past, timeless events (more)

Investigating Generalizations of Expected Utility Theory
Using Experimental Data

John Hey and Chris Orme
Econometrica   1994
Abstract
About: Probably, behavior can be modeled as
expected utility plus noises
and one should pay more attention to the noises,
rather than to even more alternatives to expected utility



Le comportement de l'homme rationnel devant le risque:
critique des postulats et axiomes de l'Ecole Americaine

Maurice Allais
Econometrica   1953
Title

Theory of Games and Economic Behavior
John von Neumann and Oskar Morgenstern
Princeton University Press   1944
Table of contents     Text (txt 1.6 MB)     Text (pdf 33 MB)

Exposition of a New Theory on the Measurement of Risk
Daniel Bernoulli
Commentarii Academiae Scientiarum Imperialis Petropolitanae   1738
Title

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Problems & Paradoxes of Utility Theories:    

The Allais paradox (modified)

Suppose Mr. Somebody offers you a choice of only one of the following:
A guaranteed gain of $99.
Or
A lottery:
The gain of $100 with the probability P(preliminary) = 99%
or
$0 with the (preliminary) probability 1%.

The mathematical expectations of guarantee and lottery outcomes are exactly the same. But people chose the guaranteed gain instead of the lottery.



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New Approach:    

The idea of the approach

Particular consideration of (hidden) uncertainties
(noises, fluctuations, measurements' errors, imprecision, etc.)

Principle of Uncertain Future
(simplified as much as possible)
The principle

The probability of a future event contains uncertainty.

1. The first consequence of the principle

Suppose we plan to test the probability value, which is equal to 99%.
Suppose the probability uncertainty value is equal to 5%.
Then, evidently, the real mean value of probability cannot be as high as 99%.
Generally,
High probabilities will decrease.
Phigh real < Phigh planned
Analogously, but considering the second consequence of the principle (see below),
Low probabilities can increase.
Plow real possible > Plow planned

2. The second consequence of the principle

The total probability of unforeseen future events
is more than 0%

Σ Punforeseen real > 0%
Hence,
The present total probability of future events
is less than 100%

Σ Pplanned < 100%
or
The present probability system of future events
is incomplete.


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New Results. Solution & Explanation of Utility Problems:    
The strongest qualitative test for Utility Theories is the 4-Fold-Pattern Paradox.

Solution & Explanation
of the 4-Fold-Pattern Paradox
(simplified as much as possible)

The well-determined facts are:
For positive (gains) risky prospects, people typically
        1) overweight low probabilities but
        2) underweight high probabilities.
For negative (losses) risky prospects, people typically
        3) underweight low probabilities but
        4) overweight high probabilities.

Denoting the real value of probability,
which value is near 100% as Phigh real ,
the (positive) value of gain as G
and the (negative) value of loss as -G ,
we obtain
Phigh real < Phigh planned

and
G * Phigh real < G * Phigh planned

-G * Phigh real > -G * Phigh planned

        2) the underweight of high probabilities gains and
        4) the overweight of high probabilities losses.
Denoting the real value of probability,
which value is near 0% as Plow real possible
we obtain
Plow real possible > Plow planned

and
G * Plow real possible > G * Plow planned

-G * Plow real possible < -G * Plow planned

        1) the overweight of low probabilities gains and
        3) the underweight of low probabilities losses.
Thus, the above facts can be explained naturally and uniformly.


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