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ECUE Decision theory

ECUE's code : IMEIDT3

This course belong to UE Behavioural and experimental economics (6 ECTS) which contains 2 ECUE
EUR ELMI
Sciences économiques
Campus Saint Jean d'Angély
Master 2
Semestre impair
Anglais

PRESENTATION

The objective of the lectures is to study individual choices under risk and uncertainty, and more specifically to present methods to elicit agents’ preferences and beliefs from their individual choices.

The lectures will mostly focus on the presentation of widely used theoretical models to represent choices, such as expected utility, rank-dependent expected utility, and prospect theory.

We will present the axiomatic foundations of each model, and test their empirical plausibility by confronting them with actual choice data between prospects by students (in the classroom and online).

Course's manager(s)

Giuseppe Attanasi , Guilhem Lecouteux

In class

  • 20h of lectures

PREREQUISITES

Before the start of the course, I must ...
  • Basic notions in probability and statistics
  • Be familiar with standard microeconomics tools (preferences, utility, etc.)

OBJECTIVES

By the end of this course, I should be able to...
  • Building a utility function from choice data
  • Eliciting preferences and beliefs from choice data
  • Modelling attitudes towards risk and uncertainty

CONTENT

  • This introductory lecture presents the general approach of the course, defining preferences and beliefs as a representation of people’s choices.

  • The first model we cover is expected value. We develop de Finetti (1931) bookmaking argument and determine the behavioral foundations of the model. We discuss applications of the model (no arbitrage condition in financial markets; prediction markets; proper scoring rule; bookmaking and odds; martingales).

  • We introduce EUT, the ‘standard’ model of choice under risk and uncertainty. We review some of the main applications of the model, and introduce some common violations (discussed in detail in later chapters)

  • We present Allais paradox and show that accommodating such preferences requires a non-linear treatment of probabilities.

  • We discuss the fourfold pattern of risk preferences and highlight the need for modelling reference-dependent preferences (with e.g. Rabin paradox).

Access to complete Syllabus (Authentification required)
Important
This syllabus has no contractual value. Its content is subject to change throughout this year: be aware to the last updates