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Behavioral welfare economics usually aims at mere means paternalism, helping agents better pursue their own goals. This paper discusses one initially promising way to inform policies addressed at agents who violate expected utility theory (EUT), namely what I call "CPT debiasing." I argue that this approach is problematic even if we grant the normative authority of EUT, the descriptive adequacy of CPT (cumulative prospect theory), and the general acceptability of means paternalism. First, it is doubtful whether the CPT utility function measures what its proponents intend. Second, by imposing risk neutrality on agents, the approach involves a more problematic paternalism. [ABSTRACT FROM AUTHOR]

A company with $n$ geographically widely dispersed sites seeks insurance that pays off if $m$ out of the $n$ sites experience rarely occurring catastrophes (e.g., earthquakes) during a year. This study describes an adaptive dynamic strategy that enables an insurance company to offer the policy with smaller loss probability than more conventional static policies induce, but at a comparable or lower premium. The strategy accomplishes this by periodically purchasing reinsurance on individual sites. Exploiting rarity, the policy induces zero loss with probability one if no more than one quake occurs during any review interval. The policy also may induce a profit if $m$ or more quakes occur in an interval if no quakes have occurred in previous intervals. The study also examines the benefit of more than one reinsurance policy per active site. The study relies on expected utility to determine indifference premiums and derives an upper bound on loss probability independent of premium. [ABSTRACT FROM AUTHOR]

The use of gamification to motivate engagement has greatly increased the number of ways in which people compete. Many of these competitions allow individuals to see how they rank as a competition progresses. Our work aims to provide a better understanding of how individuals feel about different rank outcomes in competitions. We do this by applying the principles of expected utility theory to elicit utility curves for over 3,000 people across three studies using hypothetical competition scenarios. We find consistent support for the following generalizations: 1) individuals are risk-seeking when in second place, 2) they are risk-averse when in second-to-last place, and 3) the utility decrease going from first to second place is greater than their decrease going from second-to-last to last place. Our results suggest individuals are both last-place averse and first-place seeking, with an even stronger inclination towards the latter. [ABSTRACT FROM AUTHOR]

This paper provides a novel interpretation of focal point responses (0, 50, 100 percent) in terms of ambiguous beliefs dynamics that arise in new developments of decision theory such as Choquet expected utility theory. In particular, focal point responses that have been updated from nonfocal responses can be interpreted as non-additive beliefs that account for psychological bias. A focal point response of 100 that has been updated from a nonfocal response can be represented by a non-additive belief that has been updated according to the Overestimating Update Rule. A focal point response of zero that has been updated from a nonfocal response can be represented by a non-additive belief that has been updated according to the Underestimating Update Rule. Focal point responses given consistently over time are not subject to psychological bias, and can be represented by additive probability distributions. Estimation results show such a model to be a very good fit to the data. [ABSTRACT FROM AUTHOR]

The expected utility framework developed in The War Trap is revised to correct several deficiencies. Risk-taking orientations are now treated as an integral part of the model by introducing concavity or convexity into the utility functions. The zero-sum properties of the theory are largely eliminated, and the tendency toward interpersonal comparisons of utility is removed. Several earlier results are replicated with the new model, and with annual capabilities data. New propositions are deduced that identify important limitations on conflict initiation, and relationships resulting from differences in perceptions are tested. Support is found for the contention that the revised version of the theory, of which the original model is a special case, is a powerful tool for integrating many extant hypotheses about conflict and for explaining a substantial portion of the tendency for some threats to escalate to violence or warfare and for others to be resolved peacefully. [ABSTRACT FROM AUTHOR]