Decision making in a practice framework
Nick Webber (De Montfort University, UK)
Joint work with Panagiotis Andrikopoulos and Yulia Rodionova

Thursday June 5, 16:30-17:00 | session 9.5 | Utility | room G

We describe a decision making paradigm in the practice framework of Andrikopoulos, Rodionova and Webber(2013). Decisions are found to fall into three qualitatively different categories: lifestyle, practice based, and ethical decisions. Lifestyle decisions are made by individuals to determine their membership and engagement with practices; practice based decisions are made within practices in accordance with the practice's good; ethical decisions are made by individuals to select a good to use to take an underlying decision. Economic decisions are practice based decisions taken in accordance with a particular economic practice. Group decision making is found to be able to create goods not previously used in the society. The framework is quantitative and open to econometric testing. Illustrations are presented and discussed and a simulation example is presented.

Quantile formulation: A link between Rank-dependent utility theory and expected utility theory
Zuoquan Xu (The Hong Kong Polytechnic University, Hong Kong)

Thursday June 5, 17:00-17:30 | session 9.5 | Utility | room G

Many portfolio choice models in discrete/continuous-time setting can be boiled down to optimizing the quantile function of the decision variable. The latter quantile optimization problem is known as quantile formulation of the original problem. Under certain monotonicity assumptions, several schemes to solve such quantile models are proposed in the literature. In this paper, we propose a short, neat and easy-to-follow method to solve this quantile optimization problem without using the method of calculus of variations or making any monotonicity assumptions. The method is demonstrated through a portfolio choice problem under rank-dependent utility theory (RDUT). This approach covers existing models with law-invariant preference measures including the portfolio choice model under cumulative prospect theory (CPT) or RDUT, Yaari's dual model, Lopes' SP/A model, and the optimal stopping model under CPT or RDUT. Through this approach, we show that solving a portfolio choice problem under RDUT can be boiled down to solving a classical Merton's problem under expected utility theory with the same utility function but a different pricing kernel which is explicitly determined by the given pricing kernel and probability weighting function. With this result, the feasibility, well-posedness, attainability and uniqueness issues for the portfolio choice problem under RDUT are solved.