Revealed Proxies of Utility
Mentor 1
John R. Huck
Location
Union Wisconsin Room
Start Date
5-4-2019 1:30 PM
End Date
5-4-2019 3:30 PM
Description
In finance and economic theory, utility (happiness) is an underlying driver of consumers' behavior and asset prices. However, mapping theoretical utility into a quantitative measure is problematic. The way that utility has typically been measured is through subjective well-being questions such as if the individual agrees with the statement, "Much of the time during the past week I was happy." However, answers to these questions can be sensitive to wording, framing, or question order among other factors. To get around these problems, we propose using various proxies for utility that directly reflect the psychological state of consumers. Examples of these proxies include birth/death rates, hospitalizations, suicides, and crime. Our research seeks to use these proxies to price stock returns. The thinking behind this is that, when people participate in the stock market and invest in it, then they will be attached to the amount wealth that they have invested. And, depending on the performance of the stock market, will be more likely to act in ways that reflect their growing or shrinking wealth.
Revealed Proxies of Utility
Union Wisconsin Room
In finance and economic theory, utility (happiness) is an underlying driver of consumers' behavior and asset prices. However, mapping theoretical utility into a quantitative measure is problematic. The way that utility has typically been measured is through subjective well-being questions such as if the individual agrees with the statement, "Much of the time during the past week I was happy." However, answers to these questions can be sensitive to wording, framing, or question order among other factors. To get around these problems, we propose using various proxies for utility that directly reflect the psychological state of consumers. Examples of these proxies include birth/death rates, hospitalizations, suicides, and crime. Our research seeks to use these proxies to price stock returns. The thinking behind this is that, when people participate in the stock market and invest in it, then they will be attached to the amount wealth that they have invested. And, depending on the performance of the stock market, will be more likely to act in ways that reflect their growing or shrinking wealth.
