Roee Teper

The concave integral over large spaces

This paper investigates the concave integral for capacities defined over large spaces. We characterize when the integral with respect to capacity v can be represented as the infimum over all integrals with respect to additive measures that are greater than or equal to v. We introduce the notion of loose extendability and study its relation to the concave integral. A non-additive version for the Levi theorem and the Fatou lemma are proven. Finally, we provide several convergence theorems for capacities with large cores.

Probabilistic dominance and status quo bias

Decision makers have a strong tendency to retain the current state of affairs. This well-documented phenomenon is termed status quo bias. We present the probabilistic dominance approach to status quo bias: an alternative is considered acceptable to replace the status quo only if the chances of a (subjectively) severe loss, relative to the status quo, are not too high. Probabilistic dominance is applied and behaviorally characterized in a choice model that allows for a range of status quo biases, general enough to accommodate unanimity, but also standard expected utility maximization. We present a comparative notion of “revealing more bias towards the status quo” and study its implications to the probabilistic dominance model of choice. Lastly, the model is applied to the endowment effect phenomenon and to a problem of international portfolio choice when investors are home biased.

On the continuity of the concave integral

Whenever a functional is concave it is natural to ask whether its sendograph is a closed convex set. If so, the Hahn-Banach theory implies that the functional can be represented as the infimum of all continuous linear functionals greater than or equal to it. We refer to such representation as a dual representation. Dominated convergence of the concave integral for capacities is characterized in terms of dual representation whenever sequences of functions converge pointwise outside a set of zero capacity.

Learning the Krepsian State: Exploration Through Consumption

We take the Krepsian approach to provide a behavioral foundation for responsive subjective learning processes. In contrast to the standard subjective state space models, the resolution of uncertainty regarding the true state is endogenous and depends on the decision makers actions. There need not be full resolution of uncertainty between periods. When the decision maker chooses what to consume, she also chooses the information structure to which she will be exposed. When she consumes outcomes, she learns her relative preference between them; after each consumption history, the decision makers information structure is a refinement of the previous information structure. We provide the behavioral restrictions corresponding to a recursive representation exhibiting such a learning process. Through the incorporation of dynamics we are able to identify the set of preferences the decision maker believes possible after each history of consumption, without appealing to an environment with risk.

Subjective Independence and Concave Expected Utility

When a potential hedge between alternatives does not reduce the exposure to uncertainty, we say that the decision maker considers these alternatives structurally similar. We offer a novel approach and suggest that structural similarity is subjective and should be different across decision makers. Structural similarity can be recovered through a property of the individuals preferences referred to as subjective codecomposable independence. This property characterizes a class of event-separable models and allows us to differentiate between perception of uncertainty and attitude towards it. In addition, our approach provides a behavioral foundation to Concave Expected Utility preferences.

Sandwich games

The extension of set functions (or capacities) in a concave fashion, namely a concavification, is an important issue in decision theory and combinatorics. It turns out that some set-functions cannot be properly extended if the domain is restricted to be bounded. This paper examines the structure of those capacities that can be extended over a bounded domain in a concave manner. We present a property termed the sandwich property that is necessary and sufficient for a capacity to be concavifiable over a bounded domain. We show that when a capacity is interpreted as the product of any sub group of workers per a unit of time, the sandwich property provides a linkage between optimality of time allocations and efficiency.

Time Continuity and Nonadditive Expected Utility

Information consisting of probabilities of some (but possibly not all) events induces an integral with respect to a probability specified on a subalgebra. A decision maker evaluates the alternatives using only the available information and completely ignoring unavailable information. Assume now that the decision maker assesses the worth of a different lottery at each point in a discrete time. Assume also that each such lottery is preferred to some fixed alternative lottery. Now, consider the situation where the sequence of lotteries converges in some sense. If the limiting lottery is preferred to the fixed alternative, then the preference order is referred to as time continuous. This paper studies time continuity for two preference functionals: the Choquet integral and the integral with respect to a probability specified on a subalgebra. The integral with respect to probability specified on a subalgebra is determined by the structure of the available information. By relating it to the Choquet integral, we characterize the structure of available information that would yield time continuity.

THE ENDOWMENT EFFECT AS BLESSING: THE ENDOWMENT EFFECT AS BLESSING

We study the idea that seemingly unrelated behavioral biases can coevolve if they jointly compensate for the errors that any one of them would give rise to in isolation. We suggest that the “endowment effect” and the “winners curse” could have jointly survived natural selection together. We develop a new family of “hybrid‐replicator” dynamics. Under such dynamics, biases survive in the population for a long period of time even if they only partially compensate for each other and despite the fact that the rational types payoff is strictly larger than the payoffs of all other types.

The Endowment Effect as a Blessing

We study the idea that seemingly unrelated behavioral biases can coevolve if they jointly compensate for the errors that any one of them would give rise to in isolation. We pay specific attention to barter trade of the kind that was common in prehistoric societies, and suggest that the “endowment effect” and the “winners curse” could have jointly survived natural selection together. We first study a barter game with a standard payoff-monotone selection dynamics, and show that in the long run the population consists of biased individuals with two opposed biases that perfectly offset each other. In this population, all individuals play the barter game as if they were rational. Next we develop a new family of “hybrid-replicator” dynamics. We show that under such dynamics, biases survive in the population for a long period of time even if they only partially compensate for each other and despite the fact that the rational types payoff is strictly larger than the payoffs of all other types.Experimental evidence and field data suggest that agents hold two seemingly unrelated biases: failure to account for the fact that the behavior of others reflects their private information (“winners curse”), and a tendency to value a good more once it is owned (“endowment effect”). In this paper we propose that these two phenomena are closely related: the biases fully compensate for each other in various economic interactions, and induce an “as-if rational” behavior. We pay specific attention to barter trade, of the kind that was common in prehistoric societies, and suggest that the endowment effect and the winners curse could have jointly survived natural selection together.