Long‐Run Consumption Risk and Asset Allocation under Recursive Utility and Rational Inattention

We study the portfolio decision of a household with limited information‐processing capacity (rational inattention [RI]) in a setting with recursive utility. We find that RI combined with a preference for early resolution of uncertainty could lead to a significant drop in the share of portfolios held in risky assets, even when the departure from the standard expected utility setting with full‐information rational expectations is small. In addition, we show that the equilibrium equity premium increases with the degree of inattention because inattentive investors with recursive utility face greater long‐run risk and thus require higher compensation in equilibrium.     

Risk aversion in the expected and the nonexpected utility functions

If asset returns are i.i.d. over time, the preference parameter in the time additive von Neumann-Morgenstern expected utility is the risk aversion coefficient in the Epstein-Zin nonexpected utility. By distinguishing between risk aversion and intertemporal substitution, this article provides an explanation about the observed discrepancy in the empirical estimates of the risk aversion coefficient.     

Disclosure of information in matching markets with non-transferable utility

We present a model of two-sided matching where utility is non-transferable and information about individualsʼ skills is private, utilities are strictly increasing in the partnerʼs skill and satisfy increasing differences. Skills can be either revealed or kept hidden, but while agents on one side have verifiable skills, agents on the other side have skills that are unverifiable unless certified, and certification is costly. Agents who have revealed their skill enter a standard matching market, while others are matched randomly. We find that in equilibrium only agents with skills above a cutoff reveal, and then they match assortatively. We show that an equilibrium always exists, and we discuss multiplicity. Increasing differences play an important role to shape equilibria, and we remark that this is unusual in matching models with non-transferable utility. We close the paper with some comparative statics exercises where we show the existence of non-trivial externalities and welfare implications.     

Least convex capacities

Summary. Debreu proposed the notion of `least concave utility' as a way to disentangle risk attitudes from the certainty preferences embedded in a von-Neumann Morgenstern index. This paper studies preferences under uncertainty, as opposed to risk, and examines a corresponding decomposition of preference. The analysis is carried out within the Choquet expected utility model of preference and is centered on the notion of a least convex capacity. Received: May 7, 1997; revised version: November 5, 1997     

How Politicians Make Decisions: A Political Choice Experiment

The present paper reports on a political choice experiment with elected real-world politicians. A questionnaire on political and public issues is used to examine whether prospect theory predicts the responses of experts from the field better than rational choice theory. The results indicate that framing effects do not disappear with expertise.      

Rawls's influence and counter-influence on Sen: Post-welfarism and impartiality

Abstract

This article aims to clarify Sen's paradoxical relationship to Rawls's work in the face of some misconceptions. It is argued, first, that the dialogue between the authors did not start with Sen's 1980 article “Equality of What?”: Rather, this article represents the beginning of a transformation in Sen's position towards Rawls. Second, Sen's approach to justice is not a mere extension of Rawls's theory of justice as fairness: The departure relies less on a different metric of justice than on a divergent conception of impartiality, one which undermines the foundation of Rawls's theory of justice.     

Do young women trade jobs for marriage? A skeptical view

This paper takes a skeptical view of the theory that the slight decline in young women's labor-force participation from 1985 to 1990 can be explained by the fact that there are fewer women now in their early twenties than there are men in their late twenties so that women currently have more bargaining power in the marriage market than men do.The paper argues that the assumption behind this theory, that for women marriage and employment are substitutes, is outmoded. It also contends that the theory leaves out the importance of full-time schooling as an activity alternative to employment and that in fact the increase in full-time schooling among young women has been much greater than the slight decrease in their labor-force participation.Several questions are raised about the statistical test of the theory and also about the reasons why the Wall Street Journal ran a front-page article on the slight decline in young women's labor-force participation and featured the marriage market theory as an explanation for this purported new trend.     

Measuring Identification Risk in Microdata Release and Its Control by Post‐randomisation

Statistical agencies often release a masked or perturbed version of survey data to protect the confidentiality of respondents' information. Ideally, a perturbation procedure should provide confidentiality protection without much loss of data quality, so that the released data may practically be treated as original data for making inferences. One major objective is to control the risk of correctly identifying any respondent's records in released data, by matching the values of some identifying or key variables. For categorical key variables, we propose a new approach to measuring identification risk and setting strict disclosure control goals. The general idea is to ensure that the probability of correctly identifying any respondent or surveyed unit is at most ξ, which is pre‐specified. Then, we develop an unbiased post‐randomisation procedure that achieves this goal for ξ>1/3. The procedure allows substantial control over possible changes to the original data, and the variance it induces is of a lower order of magnitude than sampling variance. We apply the procedure to a real data set, where it performs consistently with the theoretical results and quite importantly, shows very little data quality loss.