Papers of Kota Saito

A Relationship between Risk and Time Preferences. February 10, 2011. Revison of CMS–EMS Working Paper No. 1477. Northwestern University. [pdf]

This paper investigates a general relationship between risk and time preferences. I consider a decision maker who chooses between consumption of a particular prize in one period and a different prize in another period. The individual believes that today's good is certain, and that, as the promised date for a future good becomes increasingly distant, the probability of his consuming the good decreases. Under these assumptions, this paper shows that the individuals exhibits the common ratio effect, the certainty effect, and the expected utility if and only if he discounts hyperbolically, quasi-hyperbolically and exponentially, respectively.

Strotz Meets Allais: Diminishing Impatience and the Certainty Effect: Comment. 2011. American Economic Review 101: 2271–2275. [pdf]

Halevy (2008) states the equivalence between diminishing impatience (i.e., quasi-hyperbolic discounting) and the common ratio effect. The present paper shows that one way of the equivalence is false and shows the correct and general relationships: diminishing impatience is equivalent to the certainty effect and that strong diminishing impatience (i.e., hyperbolic discounting) is equivalent to the common ratio effect.

Social Preferences under Risk: Equality of Opportunity vs. Equality of Outcome. Forthcoming American Economic Review [pdf]

This paper introduces a model of inequality aversion that captures a preference for equality of ex-ante expected payoff relative to a preference for equality of ex-post payoff by a single parameter. On deterministic allocations, the model reduces to the model of Fehr and Schmidt (1999). The model provides a unified explanation for recent experiments on probabilistic dictator games and dictator games under veil of ignorance. Moreover, the model can describe experiments on a preference for efficiency, which seem inconsistent with inequality aversion. We also apply the model to the optimal tournament. Finally, we provide a behavioral foundation of the model.

Impure Altruism and Impure Selfishness. First Draft: December 13, 2010, Current Version; September 6, 2013 [pdf]

Altruism refers to a willingness to benefit others, even at one's own expense. In contrast, selfishness refers to prioritizing one's own interests with no consideration for others. However, even if an agent is selfish, he might nevertheless act as if he were altruistic out of selfish concerns triggered when his action is observed; that is, he might seek to feel pride in acting altruistically and to avoid the shame of acting selfishly. We call such behavior impurely altruistic . Alternatively, even if an agent is altruistic, he might nevertheless give in to the temptation to act selfishly. We call such behavior impurely selfish . This paper axiomatizes a model that distinguishes altruism from impure altruism and selfishness from impure selfishness. In the model, unique real numbers separately capture altruism and the other forces, or pride, shame, and the temptation. We show that the model can describe recent experiments on dictator games with an exit option. In addition, we describe two empirical puzzles involving charitable donations: (i) government spending only partially crowds out consumers' donations and (ii) redistribution of income by the government affects the total donation of consumers, contrary to the prediction based on standard consumer theory.

Preference for Flexibility and Preference for Randomization under Ambiguity. First Draft: April 16, 2012, Current Version; August 6, 2013 . [pdf]

When an agent is not sure about the consequences of his actions, he faces a situation of choice under ambiguity. One way for the agent to alleviate the effect of ambiguity is to hedge by randomizing his choice. This paper studies hedging as a motivation for random choices. We claim that how much hedging the agent can obtain by his randomization depends on two conditions. First, it depends on the flexibility of the agent's choice set. Second, it depends on how the agent evaluates the randomization. We investigate the agent's preferences over sets of acts. We axiomatize a utility function that describes how these two conditions affect the agent's random choice. In the utility function, a unique real number captures the agent's subjective probability that his randomization provides hedging. In addition, we use the utility function to study how the flexibility of the agent's choice set affects his random choice and his attitude toward ambiguity. In particular, we show that limiting the agent's choice set increases his ambiguity premium, which is consistent with experimental evidence.