The effect of increased variance on the duration of search: A note

A search procedure with a finite number of possible periods of search is considered here. It is assumed that the offers at different periods are independent of each other, that there are no search costs, and that there is no discounting of future receipts. It is shown that if the offers come from a normal population with the same mean then the expected duration of the search, given that an optimal search procedure is followed, is independent of the variance.     

Alternative utility functions: review,analysis and comparison

The paper reviews the development of von Neumann and Morgenstern (vNM) utility theory. Kahneman and Tversky’s (KT’s) prospect theory is introduced. The vNM utility function is compared and contrasted with KT’s value function. We prove the uniqueness of two popular utility functions. First, we show that all power utility functions possess constant RRA. And, we show that all exponential utility functions have constant ARA. The paper concludes by discussing applications, strengths and weaknesses of various utility functions.     

On optimal growth under uncertainty

In a recent paper Brock and Mirman showed that in a one-sector model of economic growth under uncertainty the long-run behavior of the optimal capital stock is governed by the basic properties of an acyclic ergodic Markov process. This paper considers a similar model and has two purposes. First, necessary and sufficient conditions for optimal policy functions are derived in a regime in which future utilities are discounted. These conditions lead, in an example, to an explicit optimal policy function, which is used to display the steady-state solution for the capital stock under an optimal policy. Secondly, in the Brock and Mirman paper it was assumed that the production functions are ordered. We show that all the properties proved by Brock and Mirman are satisfied even when the production functions are not ordered.     

Reaction to price changes and aspiration level adjustments

   Abstract. We claim that preferences of economic agents cannot be assumed given; rather, they are partly determined by the process of trade in the market, by information about the latter and so forth. In other words, preferences determine actions which, in turn, determine preferences. Thus classical tools of analysis such as the neo-classical utility function and the demand curve should be viewed merely as first approximations, which are too simplistic for many purposes. Changing preferences are not restricted to such phenomena as addiction, advertisement and so forth. Rather, for any product a satisficing consumer has an aspiration level, which is subject to change. The consumer's preferences, as reflected in choice behavior, will also change once the aspiration level is adjusted. We illustrate these claims by analyzing two examples concerning consumer reaction to price increases. We analyze the effect of aspiration level adjustments on the dynamic pattern of a single consumer's demand, and show that such adjustments generate predictions which do not conform to the neo-classical theory.     

Consumption-loan type models the Samuelson case

This is a further study of the overlapping generations model with fixed amount of fiat money. We show that when the economy is Samuelsonian then there exists some Pareto optimal stationary competitive equilibrium from some initial money holdings. Moreover, if the steady-state interest factor is less than unity, then a non-monetary Pareto optimal equilibrium exists from any initial money endowments.     

Dynamic Influences on Individual Choice Behavior

Research examining the process of individual decision making over time isbriefly reviewed. We focus on two major areas of work in choice dynamics:research that has examined how current choices are influenced by the historyof previous choices, and newer work examining how choices may be made toexploit expectations about options available in the future. A central themeof the survey is that if a general understanding of choice dynamics is toemerge, it will come through the development of boundedly-rational models ofdynamic problem solving that lie on the interface between economics andpsychology.