My research focuses on decision-making under uncertainty with a particular interest in models that find the right balance between what is and what should be; models incorporating observed preferences and departing little from rationality: Research statement.I coorganize Theory and Decision a research seminar focused on theory, decisions and experiments, which is part of Warsaw Economic Seminars.
FEATURED RESEARCH
On reference dependence and complementary symmetry, Abstract This paper reevaluates the complementary symmetry property and the corresponding experimental evidence. Originally the property was stated for binary risky prospects. We generalize it to arbitrary state-contingent real-valued outcomes, thus extending the domain of choice from risk to uncertainty/ ambiguity and allowing for multiple outcomes. We consider various observable tasks related to the elicitation of buying and selling prices. In particular, for selected reference point models, we derive relevant definitions of gains and losses, and identify pairs of prices satisfying the complementary symmetry property. We then run an experiment to test these new predictions, and find that while some reference point models can be refuted based on our data, others perform reasonably well Journal of Mathematical Psychology, 2022.
Complementary symmetry in Cumulative Prospect Theory with random reference, AbstractIt is demonstrated that complementary symmetry holds in a general version of the Third-Generation Prospect Theory, in which the utility function for gains and losses is allowed to be any strictly increasing and continuous function satisfying u(0)=0. Journal of Mathematical Psychology, 2018.
Range dependent utility, joint with Krzysztof Kontek, AbstractFirst, this paper introduces and axiomatizes range-dependent utility as a new conceptual framework for decision-making under risk. It is a simple and well-defined generalization of Expected Utility Theory in which utility depends on the range of lottery outcomes. Second, a special case of this framework is proposed for prediction. It is based on applying a single utility function (decision utility) to every normalized lottery range. The resulting decision utility model predicts well-known Expected Utility paradoxes without recourse to probability weighting. Necessary and sufficient conditions for the model to satisfy monotonicity with respect to FOSD are identified. The typical decision utility function is S-shaped which is confirmed both by experimental data and normative considerations., Slides: Model, Short description Management Science, 2017
Buying and selling price for risky lotteries and Expected Utility theory with gambling wealth, AbstractI analyze two expected utility models which abandon the consequentialist assumption of terminal wealth positions. In the expected utility of gambling wealth model, in which initial wealth is allowed to be small, I show that a large WTA/WTP gap is possible and the (Rabin in Econometrica, 68(5), 1281–1292, 2000) paradox may be resolved. Within the same model the classical preference reversal which allows arbitrage is not possible, whereas preference reversal (involving buying prices in place of selling prices), which does not allow arbitrage, is possible. In the expected utility of wealth changes model, in which there is no initial wealth, I show that both a WTA/WTP gap as well as the classical preference reversal are possible due to loss aversion, both in its general as well as some specific forms.. Journal of Risk and Uncertainty, 2014.
OTHER RESEARCH PAPERS
A genetic algorithm for vehicle routing in logistic networks with practical constraints, AbstractWe optimise a postal delivery problem with time and capacity constraints imposed on vehicles and nodes of the logistic network. Time constraints relate to the duration of routes, whereas capacity constraints concern technical characteristics of vehicles and postal operation outlets. We consider a method which can be applied to a brownfield scenario, in which capacities of outlets can be relaxed and prospective hubs identified. As a solution, we apply a genetic algorithm and test its properties both in small case studies and in a simulated problem instance of a larger (i.e. comparable with real-world instances) size. We show that the genetic operators we employ are capable of switching between solutions based on direct origin-to-destination routes and solutions based on transfer connections, depending on what is more beneficial in a given problem instance. Moreover, the algorithm correctly identifies cases in which volumes should be shipped directly, and those in which it is optimal to use transfer connections within a single problem instance, if an instance in question requires such a selection for optimality. The algorithm is thus suitable for determining hubs and satellite locations. All considerations presented in this paper are motivated by real-life problem instances experienced by the Polish Post, the largest postal service provider in Poland, in its daily plans of delivering postal packages, letters and pallets. Statistical Review, 2021.
Prospect Theory Versus Expected Utility Theory: Assumptions, Predictions, Intuition and Modelling of Risk Attitudes, AbstractThis is an article presenting Cumulative Prospect Theory of Tversky, Kahnemann (1992), its motivation, main building blocks, intuition and properties. I sketch the critique of the standard Expected Utility model, present the original Prospect Theory by Kahnemann, Tversky (1979), describe the intuition of rank-dependence provided by Diecidue, Wakker (2001), then present Cumulative Prospect Theory and describe the way risk attitudes are handled within this theory. The paper is concluded with a selective list of existing applications of CPT. Central European Journal of Economic Modelling and Econometrics, 2017.
Risk attitudes, buying and selling price for a lottery and simple strategies, AbstractThis paper defines the concept of simple strategy and introduces three kinds of simple strategies: wealth-invariant, scale-invariant and „wealthier-accept more”. For three commonly used utility function families: CARA, CRRA and DARA equivalent characterizations are obtained in terms of the corresponding simple strategy, in terms of the buying and selling price properties, and in terms of the utility function properties as expressed by Cauchy functional equations. Moreover, an extension of famous Pratt (1964) theorem is proved which involves buying price for a lottery as an alternative measure of comparative risk aversion. Additionally a number of propositions on both selling and buying price for a lottery and CRRA utility class are proved. Central European Journal of Economic Modelling and Econometrics, 2013.
WORKING PAPERS
Range utility theory for uncertain cash-flows, joint with Manel Baucells and Krzysztof Kontek, AbstractWe introduce range utility theory, an integrative behavioral model for uncertain cash flows. The model modifies rank dependent utility, by replacing rank principles with range principles, and extends the domain to time. For gambles played in the future, the model generalizes the probability and time trade-off model. The model comes with three functions: a value function, a subjective survival function for time and an s-shaped range distortion function, and. Range Utility Theory jointly explains the Samuelson paradox for risk and time, the preference reversal phenomenon, and hyperbolic discounting; and produces many novel testable predictions.
Range and sign dependent utility, joint with Manel Baucells and Krzysztof Kontek, AbstractWe introduce range and sign dependent utility, an integrative behavioral model for uncertain cash flows. For gambles played today, the model can be seen as an extension of original prospect theory based on range, rather than rank. For single future payouts, the model agrees with hyperbolic discounting; whereas for multiple cash flows it takes a novel form. The model comes with a framing rule to set the range and the reference point, and three functions: a loss averse value function, a s-shaped range distortion function, and a subjective survival function for time. Range and sign dependent utility jointly explains the classical Allais paradoxes, the Samuelson paradox for risk and time, the preference reversal phenomenon and, for time, decreasing impatience and magnitude effects.
Is Expected Utility an ex-hypothesis? Some implications of a Reference-Dependent Expected Utility model, AbstractRabin, Thaler (2001) declared Expected Utility an ex-hypothesis and a dead parrot alluding to the famous sketch from Monthy Python’s Flying Circus. Following Cox, Sadiraj (2006) and others, one should distinguish between Expected Utility (EU) theory (a purely mathematical theory based on axioms) and Expected Utility models (EU theory plus a given economic interpretation). It is argued that Rabin, Thaler (2001) ciritique concerns the most prevalent economic interpretation, namely that of consequentialism (Rubinstein, 2012). We replace consequentialism with reference-dependence, retaining the EU hypothesis. Using Sugden (2003) framework, we show that many violations of the standard EU model can be explained assuming this different intrerpretation. Among the topics considered are: WTA/WTP disparity, preference reversal, complementary symmetry, preference homogeneity, loss aversion, reflection effect. Finally we analyze the Dutch Book arguments within this framework.
Minimax regret and deviations form Nash Equilibrium, Abstract We build upon Goeree and Holt [American Economic Review , 91 (5)(2001), 1402-1422] and show that the deviations from Nash Equilibrium play observed in their experiment on static games of complete information can be explained by minimizing the maximum regret. Supplementary Excel file
Foster-Hart measure of riskiness and buying/selling price for a lottery, Abstract This paper establishes a number of functional relationships between the riskiness measure of Foster-Hart and its extension and buying/selling price of a lottery. The results allow comparison of riskiness measures for lotteries that either have non-positive expectation or do not take negative values.
I do refereeing for the following journals: Management Science, Journal of Mathematical Psychology, Mathematics and Financial Economics, Games and Economic Behavior, Theory and Decisions, Economics Letters, Decision Analysis, Frontiers in Physics, The B.E. Journal of Theoretical Economics, Journal of Behavioral and Experimental Economics, The Geneva Risk and Insurance Review, Peace Economics, Peace Science and Public Policy, Ekonomia. I also served as a Scientific Expert evaluating research proposals for the French National Research Agency.