Analysis of a numerical dynamic programming algorithm applied to economic models

Article Abstract:

A distinct version of the dynamic programming algorithm is developed and its stability and convergence properties are studied. The computed policy function converges linearly and the computed value function converges quadratically to the true value function. The algorithm is found to be stable. The numerical application of the algorithm is attained through well-tested, standard processes and can be used in commonly studied growth models.

Dynamic programming

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The probability weighting function

Article Abstract:

The probability weighting function is a widely known characteristic of various non-expected utility theories, such as prospect theory and rank-dependent models. Such function is found to be regressive, concave, s-shaped and asymmetrical. Each of the properties found in probability weighting function is not only independent of subproportionality but also creates a distinct effect on risk attitudes.

Utility theory, Utility functions

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