Enrico Diecidue

Università commerciale Luigi Bocconi, Milano, Lombardy, Italy

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Publications (22)18.87 Total impact

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    Steffen Keck, Enrico Diecidue, David V. Budescu
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    ABSTRACT: This paper focuses on decisions under ambiguity. Participants in a laboratory experiment made decisions in three different settings: (a) individually, (b) individually after discussing the decisions with others, and (c) in groups of three. We show that groups are more likely to make ambiguity-neutral decisions than individuals, and that individuals make more ambiguity-neutral decisions after discussing the decisions with others. This shift towards higher ambiguity neutrality in groups and after a group discussion is associated with a reduction in the rates of both ambiguity aversion and ambiguity seeking. We attribute the results to the effective and persuasive communication that takes place in groups.
    Journal of Economic Behavior & Organization 04/2012; · 1.01 Impact Factor
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    Enrico Diecidue, Nils Rudi, Wenjie Tang
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    ABSTRACT: We model a dynamic purchase context in which a consumer is uncertain about the product's valuation. The consumer has two purchase opportunities for the product: forward purchase in period 1 or spot purchase in period 2. Two forms of regret are considered: buyer's regret over the money paid in excess of his valuation of the product when buying forward; and hesitater's regret for the lost opportunity of an increased surplus when not buying forward. We illustrate how regrets a ect the purchase decision: a consumer is more likely to buy forward when more averse to hesitater's regret but more likely to delay the decision when more averse to buyer's regret. We also consider alternative consumer types to characterize how regret a ects their spot purchase decisions as well as what triggers the regret. We show that type inconsistency (that is, a consumer's incorrect anticipation of his future type) induces an inferior period 1 purchase decision and thereby reduces the consumer's expected surplus.
    01/2011;
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    ABSTRACT: Intertemporal decision making under risk involves two dimensions: time preferences and risk preferences. This paper focuses on the impact of time on risk preferences, independent of the intertemporal trade-off of outcomes, i.e., time preferences. It reports the results of an experimental study that examines how delayed resolution and payment of risky options influence individual choice. We used a simple experimental design based on the comparison of two-outcome monetary lotteries with the same delay. Raw data clearly reveal that subjects become more risk tolerant for delayed lotteries. Assuming a prospect theory-like model under risk, we analyze the impact of time on utility and decision weights, independent of time preferences. We show that the subjective treatment of outcomes (i.e., utility) is not significantly affected by time. In fact, the impact of time is completely absorbed by the probability weighting function. The effect of time on risk preferences was found to generate probabilistic optimism resulting in a higher risk tolerance for delayed lotteries. This paper was accepted by Teck Ho, decision analysis.
    Management Science 01/2011; 57:975-987. · 1.86 Impact Factor
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    Han Bleichrodt, Alessandra Cillo, Enrico Diecidue
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    ABSTRACT: This paper introduces a choice-based method that for the first time makes it possible to quantitatively measure regret theory, one of the most popular models of decision under uncertainty. Our measurement is parameter-free in the sense that it requires no assumptions about the shape of the functions reflecting utility and regret. The choice of stimuli was such that event-splitting effects could not confound our results. Our findings were largely consistent with the assumptions of regret theory although some deviations were observed. These deviations can be explained by psychological heuristics and referencedependence of preferences.
    Management Science 01/2010; 56:161-175. · 1.86 Impact Factor
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    Ulrich Schmidt, Enrico Diecidue, Horst Zank
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    ABSTRACT: This paper provides preference foundations for parametric weighting functions under rank-dependent utility. This is achieved by decomposing the independence axiom of expected utility into separate meaningful properties. These conditions allow us to characterize rank-dependent utility with power and exponential weighting functions. Moreover, by allowing probabilistic risk attitudes to vary within the probability interval, a preference foundation for rank-dependent utility with parametric inverse-S shaped weighting function is obtained.
    Journal of Economic Theory 05/2009; 144(3):1102-1118. · 1.24 Impact Factor
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    Jeroen van de Ven, Enrico Diecidue
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    ABSTRACT: Aspiration levels are a relevant aspect of decision making. We develop a model that includes the overall probabilities of success and failure relative to the aspiration level into an expected utility representation. This turns out to be equivalent to expected utility with a discontinuous utility function. We give a behavioral foundation to the proposed model and provide conditions to determine the relative weights of the overall probabilities of success and failure. An aspiration level reinforces loss aversion, can account for simultaneous risk-averse and risk-seeking behavior, and can explain choices violating the mean-variance approach. Copyright ©2008 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.
    International Economic Review 01/2008; 49(2):683-700. · 1.56 Impact Factor
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    Enrico Diecidue, Jeroen van de Ven, Utz Weitzel
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    ABSTRACT: Data on U.S. mergers and aquisitions from 1987 to 2006 indicate that firms with high market-to-book values (i.e., Tobin's Q) tend to merge with firms that have lower Q's, but that target Q's are on average higher than those of firms not involved in mergers at all. We capture this fact with a model in which the ratio of a bidder's Q to that of a prospective target has a non-monotone, inverted U-shaped effect on the probability of the two firms merging. Further, we find that the likelihood of a merger is positively and linearly related to the ratio of the growth potential of an acquirer and its prospective target. Using data from Compustat, a series of bootstrap logit regressions bear out these implications.
    Utrecht School of Economics, Working Papers. 01/2008;
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    Enrico Diecidue, Peter Wakker, Marcel Zeelenberg
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    ABSTRACT: This paper extends de Finetti’s betting-odds method for assessing subjective beliefs to ambiguous events. Thus, a tractable manner for measuring decision weights under ambiguity is obtained. De Finetti’s method is so transparent that decision makers can evaluate the relevant tradeoffs in complex situations. The resulting data can easily be analyzed, using nonparametric techniques. Our extension is implemented in an experiment on predicting next-day’s performance of the Dow Jones and Nikkei stock indexes, where we test the existence and nature of rank dependence, finding usual patterns. We also find violations of rank dependence.
    Journal of Risk and Uncertainty 02/2007; 34(3):179-199. · 1.53 Impact Factor
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    Enrico Diecidue, Insead, Fontainebleau
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    ABSTRACT: The book-making argument was introduced by de Finetti as a principle to prove the existence and uniqueness of subjective probabilities. It has subse-quently been accepted as a principle of rationality for decisions under uncer-tainty. This note shows that the book-making argument has relevant applica-tions to welfare: It gives a new foundation for utilitarianism that is alternative to Harsanyi's, it generalizes foundations based on the theorem of the alterna-tive, and it avoids arguments based on expected utility.
    Theory and Decision 09/2006; 61(4). · 0.48 Impact Factor
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    Han Bleichrodt, Enrico Diecidue, John Quiggin
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    ABSTRACT: This paper introduces the rank-dependent quality-adjusted life-years (QALY) model, a new method to aggregate QALYs in economic evaluations of health care. The rank-dependent QALY model permits the formalization of influential concepts of equity in the allocation of health care, such as the fair innings approach, and it includes as special cases many of the social welfare functions that have been proposed in the literature. An important advantage of the rank-dependent QALY model is that it offers a straightforward procedure to estimate equity weights for QALYs. We characterize the rank-dependent QALY model and argue that its central condition has normative appeal.
    Journal of Health Economics 02/2004; 23(1):157-71. · 1.60 Impact Factor
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    Ulrich Schmidt, Enrico Diecidue, Peter P. Wakker
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    ABSTRACT: The utility of gambling, which entails an intrinsic utility or disutility of risk, has been alluded to in the economics literature for over a century. This paper demonstrates that any utility of gambling almost unavoidably implies a violation of fundamental rationality properties, such as transitivity or stochastic dominance, for static choices between gambles. This result may explain why the utility of gambling, a phenomenon so widely discussed, has never been formalized in the economics literature. The model of this paper accommodates well-known deviations from expected utility, such as the Allais paradox and the coexistence of gambling and insurance, while minimally deviating from expected utility.
    Journal of Risk and Uncertainty 02/2004; 29(3):241-259. · 1.53 Impact Factor
  • Enrico Diecidue
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    ABSTRACT: Experimental studies show that aspiration levels are a relevant aspect of decision making. We develop a model that takes aspiration levels into account. We include in expected utility the overall probability of reaching at least the as- piration level, i.e., the probability of success. This leads to several predictions that …t empirical evidence. Most notably, aspiration levels lead to extreme loss aversion, can account for simultaneous risk-averse and risk-seeking behav- ior, and can explain choices violating the mean-variance approach. We give a behavioral foundation to the proposed model.
    01/2004;
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    Enrico Diecidue, Peter P Wakker, Marcel Zeelenberg
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    ABSTRACT: This paper extends de Finetti's betting-odds method for assessing subjective probabilities to ambiguous events, i.e. events for which beliefs of decision makers cannot be quantified through subjective probabilities. De Finetti's method is so transparent that decision makers can evaluate the relevant tradeoffs even in relatively complex situations, for prospects with three or more uncertain outcomes. The rank-dependent novelty of modern theories such as prospect theory and rank-dependent utility shows up only for such prospects, and several empirical properties of these theories of belief can be directly tested only there. The extension of de Finetti's method is implemented in an experiment on predicting next-day's performance of the Dow Jones and Nikkei indexes. Evidence is found for the rank dependence that underlies the aforementioned theories, for likelihood insensitivity ("inverse-S shape") as posited by prospect theory, and for pessimism as mostly assumed in economic studies. Part of the deviations from expected utility in the data are due to factors beyond any current decision model.
    12/2003;
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    Enrico Diecidue, Fabio Maccheroni
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    ABSTRACT: The Dutch book argument is a coherence condition for the existence of subjective probabilities. This paper gives a general framework of analysis for this argument in a nonadditive probability setting. Particular cases are given by comonotonic and affinely related Dutch books that lead to Choquet expectations and Min expectations.
    Journal of Mathematical Psychology 04/2003; · 1.62 Impact Factor
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    Enrico Diecidue, Peter P. Wakker
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    ABSTRACT: This paper formalizes de Finetti’s book-making principle as a static individual preference condition. It thus avoids the confounding strategic and dynamic effects of modern formulations that consider games with sequential moves between a bookmaker and a bettor. This paper next shows that the book-making principle, commonly used to justify additive subjective probabilities, can be modified to agree with nonadditive probabilities. The principle is simply restricted to comonotonic subsets which, as usual, leads to an axiomatization of rank-dependent utility theory. Typical features of rank-dependence such as hedging, ambiguity aversion, and pessimism and optimism can be accommodated. The model leads to suggestions for a simplified empirical measurement of nonadditive probabilities.
    Mathematical Social Sciences. 01/2002;
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    Enrico Diecidue, Peter P Wakker
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    ABSTRACT: Among the most popular models for decision under risk and uncertainty are the rank-dependent models, introduced by Quiggin and Schmeidler. Central concepts in these models are rank-dependence and comonotonicity. It has been suggested that these concepts are technical tools that have no intuitive or empirical content. This paper describes such contents. As a result, rank-dependence and comonotonicity become natural concepts upon which preference conditions, empirical tests, and improvements in utility measurement can be based. Further, a new derivation of the rank-dependent models is obtained. It is not based on observable preference axioms or on empirical data, but naturally follows from the intuitive perspective assumed. We think that the popularity of the rank-dependent theories is mainly due to the natural concepts used in these theories. Copyright 2001 by Kluwer Academic Publishers
    Journal of Risk and Uncertainty 01/2001; 23(3):281-98. · 1.53 Impact Factor
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    Peter P. Wakker, Enrico Diecidue, Ulrich Schmidt
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    ABSTRACT: This paper presents a model for the "gambling effect," i.e., the effect that risky gambles are evaluated differently than riskless outcomes due to an intrinsic utility (or disutility) of gambling. The model turns out to violate stochastic dominance and therefore its primary applications will be descriptive. It sheds new light on empirical observations of risk attitudes and provides new insights into the distinction between risky and riskless utility.
    10/2000;
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    E. Diecidue, P.P. Wakker
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    ABSTRACT: This paper shows how de Finetti's book-making principle, commonly used to justify additive subjective probabilities, can be modi/ed to agree with some nonexpected utility models. More precisely, a new foundation of the rank-dependent models is presented that is based on a comonotonic extension of the book-making principle. The extension excludes book-making only if all gambles considered induce a same rank-ordering of the states of nature through favorableness of their associated outcomes, and allows for nonadditive probabilities. Typical features of rank-dependence, hedging, ambiguity aversion, and pessimism and optimism, can be accommodated.
    SSRN Electronic Journal 02/2000;
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    E. Diecidue, P.P. Wakker
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    ABSTRACT: Data on U.S. mergers and aquisitions from 1987 to 2006 indicate that firms with high market-to-book values (i.e., Tobin's Q) tend to merge with firms that have lower Q's, but that target Q's are on average higher than those of firms not involved in mergers at all. We capture this fact with a model in which the ratio of a bidder's Q to that of a prospective target has a non-monotone, inverted U-shaped effect on the probability of the two firms merging. Further, we find that the likelihood of a merger is positively and linearly related to the ratio of the growth potential of an acquirer and its prospective target. Using data from Compustat, a series of bootstrap logit regressions bear out these implications.
    Journal of Risk and Uncertainty 01/2000; · 1.53 Impact Factor
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    Enrico Diecidue, Ulrich Schmidt, Peter P Wakker
    Wakker@MDM.MedFac.LeidenUniv.NL. 11/1999; 4663032805323981:31-1331.