We consider a two-period life-cycle model where uncertainty about future labour income is modelled by a fuzzy set. Applying a defuzzification strategy that explicitly takes the individual’s behaviour towards risk into account, we show that pessimistic individuals engage in precautionary savings even if marginal utility is not convex, e.g. in case of a quadratic utility function.  2001 Elsevier...

Despite the vital role of the utility function in welfare measurement, the implications of working with incorrect utility specifications have been largely neglected in the choice experiments literature. This paper addresses the importance of specification with a special emphasis on the effects of mistaken assumptions about the marginal utility of income. Monte Carlo experiments were conducted u...

A basic tenet of microeconomics suggests that the subjective value of financial gains decreases with increasing assets of individuals ("marginal utility"). Using concepts from learning theory and microeconomics, we assessed the capacity of financial rewards to elicit behavioral and neuronal changes during reward-predictive learning in participants with different financial backgrounds. Behaviora...

In order to evaluate whether workers are overor under-insured through the Disability Insurance (DI) program, we develop a framework that allows us to simulate the benefits as well as the costs associated with marginal changes in payment generosity from a representative cross-sectional sample of the population. Under the assumption that individuals are reasonably risk averse, we find that the ty...

We prove that for any incomplete market and any concave utility function the marginal propensities to consume and to save are always positive. Furthermore, we introduce a class of incomplete markets that includes almost all well known examples of market incompleteness in finance and macroeconomics. Two concrete examples are idiosyncratic income shocks and general, diffusion driven incompletenes...

A random life expectancy and a positive relationship between the probability of dying and the degree of addiction are incorporated into a model of rational addiction. The BeckerMurphy equality between the addictive commodity’s full price and marginal utility is modified by discounting the market price and marginal utility of the addictive commodity by the probability of survival. The individual...

I propose an extension to the consumption capital asset pricing model to incorporate the introduction of new goods over time and states of nature. In the model, consumers have a love of variety, and consumption consists of different components—product groups and brands. Expected growth in product groups increases expected future marginal utility, raising the incentive to save—thereby reducing t...

A wide range of international macroeconomic models link the real exchange rate to a ratio of marginal utilities. These include models based on non-traded goods, and those with a variety of frictions including trading costs and pricing to market. We examine this link empirically, while allowing the marginal utility of consumption to depend on government expenditure, leisure, real money balances,...

In this paper, I study the nonparametric identification of a multidimensional adverse selection model. In particular, I consider the screening model of Rochet and Choné (1998), where products have multiple characteristics and consumers have private information about their multidimensional taste for these characteristics, and determine the data features and additional condition(s) that identify ...

Agglomeration can be caused by asymmetric information and a locational signaling effect: The location choice of workers signals their productivity to potential employers. The cost of a signal is the cost of housing at a location. When workers’ marginal utility of housing is negatively correlated with their productivity, skill-biased technological change causes a core-periphery bifurcation where...