This paper reports new experimental and survey data collected from bank customers at several Italian banks. These data aim to uncover the decision processes used by investors, including their investment goals, the information sets they... more
This paper reports new experimental and survey data collected from bank customers at several Italian banks. These data aim to uncover the decision processes used by investors, including their investment goals, the information sets they consider, and the number of factors that actually influence high-stakes financial decisions. Most subjects use a strict subset of the information available to them, ignoring variables that standard economic models typically assume drive investors' behavior. Rather than random trembling which would predict that omitted variables are dropped at random, fast and information-frugal heuristics appear to explain the information search and decision behavior of many subjects observed in this study, reflecting a lexicographic hierarchy of risk, time horizon and cost, in that order. A simple combination of a fast and frugal tree and a tallying rule predicts about 80% of investors' decisions.
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If the cost of gathering information about where profitable locations can be found affects firms’ calculations of expected profits, then decentralized location choice by profit-maximizing firms is predicted to leave some neighborhoods in... more
If the cost of gathering information about where profitable locations can be found affects firms’ calculations of expected profits, then decentralized location choice by profit-maximizing firms is predicted to leave some neighborhoods in a state of urban blight with no formal commerce despite them having opportunities for profit. Planners often conclude that neighborhoods and regional economies persist in abandonment or decay because it is unprofitable for firms to locate there. Contrary to that intuition, this paper provides a new explanation for spatial lock-in based on privately optimal but socially inefficient information pooling, which works to the disadvantage of undeveloped geographic regions in attracting formal commerce. A simple model demonstrates that firms may rationally choose to overlook neighborhoods because they economize on the costs of gathering information. When firms condition their choices of location on earlier movers’ choices, second-mover firms will sometimes...
This paper analyzes the behavior of a habit-prone consumer who seeks to repeat experiences from the past while simultaneously trying to maximize a traditional utility function. This behavior — i.e., minimizing the gap between past and... more
This paper analyzes the behavior of a habit-prone consumer who seeks to repeat experiences from the past while simultaneously trying to maximize a traditional utility function. This behavior — i.e., minimizing the gap between past and present while maximizing the satisfaction derived from quantities consumed — reflects what is referred to as “reference-point dependent preferences.” For a consumer with reference-point dependent preferences, the very act of consuming shifts the reference point, leading to a re-ordering of the consumer’s subjective ranking of commodity bundles. Absent any exogenous changes, consumer demand is a dynamical system that evolves through time. Within this framework, a condition is given guaranteeing that ordinary demand achieves a steady state. When this condition is not satisfied, the consumer binges, eventually allocating all disposable income to a single good. Relying on a variety of results from cognitive and experimental psychology, this paper exploits ...
Dynamic correlation models estimated in this paper demonstrate that the relationship between interest rates and housing prices is typically non-constant. The estimates reveal statistically significant time fluctuations in correlations... more
Dynamic correlation models estimated in this paper demonstrate that the relationship between interest rates and housing prices is typically non-constant. The estimates reveal statistically significant time fluctuations in correlations between house-price indexes and Treasury bonds, the S&P 500 Index and the stock prices of mortgage-related companies at different time lags. Regressions of the correlation time series reveal a number of systematic predictors: the difference between the interest rate and GDP growth, stock market growth, and the employment rate. Most home owners have few financial instruments available to them that provide direct hedging against house-price risk, whether defined in terms of volatility or downside risk. For those who wish to develop new hedging strategies, the assumption of constant correlation between interest rates and housing prices, which is common in the existing mortgagepricing literature, is an important issue. The results point to the possibility ...
A novel dataset is presented that reveals a general pattern of declining favourability in news stories about Confucius Institutes (CIs) from 2006 through 2015 in six English-speaking countries: the...
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Although it is common in economics to compare institutions on the basis of single dimensional measures of concepts such as efficiency, fairness or freedom, Allan Schmid’s Conflict and Cooperation: Institutional and Behavioral Economics... more
Although it is common in economics to compare institutions on the basis of single dimensional measures of concepts such as efficiency, fairness or freedom, Allan Schmid’s Conflict and Cooperation: Institutional and Behavioral Economics rejects that approach with a sharply contrasting vision of what institutional economics is all about. In Schmid’s view, institutional change inevitably creates winners and losers. People correctly anticipate that compensation of losers by re-distribution according to the Kaldor–Hicks principle rarely occurs in the real world. Sometimes, the incommensurability of distinct categories of benefits precludes the very possibility of compensation. Thus, policy options are virtually never Pareto comparable, because it is almost never the case that all agents (even weakly) prefer the same institution. Conflict is normal and, according to Schmid, its detail and dynamics must therefore occupy center stage in any social science aspiring to real-world relevancy.
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This article analyses a model in which the national border is determined non-dictatorially by being based on citizens’ preferences. Each country faces a trade-off in terms of social welfare when considering whether to increase its size.... more
This article analyses a model in which the national border is determined non-dictatorially by being based on citizens’ preferences. Each country faces a trade-off in terms of social welfare when considering whether to increase its size. As a country’s size increases, the government can collect more taxes and provide more public goods, which, all else equal, makes its citizens better off. On the other hand, a country that increases its size is assumed to also increase the heterogeneity of its citizens’ preferences leading to increased mismatch between preferences and the public goods provided by government. Notwithstanding the benefit of greater quantities of public goods afforded by living in a larger country, greater disatisfaction with the public goods provided by government (i.e. preference mismatch) makes some segments of the citizenry worse off. Contrary to Alesina and Spolaore (1997), we show that a symmetric national border may be unstable. We also examine whether voluntary d...
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Research Interests: Economics, Prostate Cancer, Social Influence, Social Science Research Network, Logical Consistency, and 12 moreBayes' rule, Elicitation, Predictive accuracy, Economic Loss, Ecological Rationality, Explanatory Power, Tagucghi Loss Function, Prostate Specific Antigen, Cancer Risk, Prediction Accuracy, Predictive power, and Loss function
Schelling (1969, 1971a,b, 1978) observed that macro-level patterns do not necessarily reflect micro-level intentions, desires or goals. In his classic model on neighborhood segregation, which initiated a large and influential literature,... more
Schelling (1969, 1971a,b, 1978) observed that macro-level patterns do not necessarily reflect micro-level intentions, desires or goals. In his classic model on neighborhood segregation, which initiated a large and influential literature, individuals with no desire to be segregated from those who belong to other social groups, nevertheless, wind up clustering with their own type. Most extensions of Schelling's model have replicated this result. There is an important mismatch, however, between theory and observation that has received relatively little attention. Whereas Schelling-inspired models typically predict large degrees of segregation starting from virtually any initial condition, the empirical literature documents considerable heterogeneity in measured levels of segregation. This chapter introduces a mechanism that can produce significantly higher levels of integration and, therefore, brings predicted distributions of segregation more in line with real-world observation. A...
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Faced with tradeoffs between hedonic pleasure from ordinary consumption and an effective technology that reduces the amount of consumption required to avoid discontentment, our model shows how utility maximizing consumers allocate wealth... more
Faced with tradeoffs between hedonic pleasure from ordinary consumption and an effective technology that reduces the amount of consumption required to avoid discontentment, our model shows how utility maximizing consumers allocate wealth between hedonic consumption and aspiration control. Aspiration control turns out to be an inferior good over a large subset of parameter space. Demand for hedonic aspiration control is discontinuous and non-monotonic with respect to price (i.e., sometimes Giffen). Our simple, one-shot allocation problem therefore reveals a surprising anything-goes result for ordinary demand. Counterintuitive consumer responses to subsidies and supply shocks in markets for aspiration control are likely. JEL classification: D18, D11, B30.
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Research Interests: Quality Management, Information Management, Privacy, Service Oriented Architecture, Value Chain, and 9 moreInformation Sharing, Life Cycle, Information Analysis, Scientific Research, Design and Development, Department of Defense, Intelligence Security and Informatics, Intelligent Sensors, and Intelligent Networks
Page 1. Berg l GBER, V. 5, #I, 2003 HEDGING HOUSING RISK IN THE NEW ECONOMY: IS THERE A CONNECTION, AND SHOULD FIRMS CARE? Nathan Berg, University of Texas at Dallas, USA ABSTRACT This paper analyzes ...
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Non-response bias refers to the mistake one expects to make in estimating a population characteristic based on a sample of survey data in which, due to non-response, certain types of survey respondents are under-represented. Social... more
Non-response bias refers to the mistake one expects to make in estimating a population characteristic based on a sample of survey data in which, due to non-response, certain types of survey respondents are under-represented. Social scientists often attempt to make inferences about a population by drawing a random sample and studying relationships among the measurements contained in the sample. When individuals from a special subset of the population are systematically omitted from a particular sample, however, the sample cannot be said to be “random,” in the sense that every member of the population is equally likely to be included in the sample. It is important to acknowledge that any patterns uncovered in analyzing a non-random sample do not provide valid grounds for generalizing about a population in the same way that patterns present in a random sample do. The mismatch between the average characteristics of respondents in a non-random sample and the average characteristics of the population can lead to serious problems in understanding the causes of social phenomena and may lead to misdirected policy action. Therefore, considerable attention has been given to the problem of non-response bias, both at the stages of data collection and data analysis.
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Behavioral economics has in recent decades emerged as a prominent set of methodological developments that have attracted considerable attention both within and outside the economics profession. The time is therefore auspicious to assess... more
Behavioral economics has in recent decades emerged as a prominent set of methodological developments that have attracted considerable attention both within and outside the economics profession. The time is therefore auspicious to assess behavioral contributions to particular subfields of economics such as labor economics. With empirical validity among its chief objectives, one might guess that behavioral economics would have made its clearest mark in data-driven subfields such as labor economics. Motivated in part by the question of why labor economics has been a relatively slow adopter of behavioral theory, this essay surveys a wide range of behavioral studies that address core labor issues. Part of the explanation is that labor economists working in the neoclassical tradition have been relatively frank in revealing shortcomings of the neoclassical theory and aggressive in empirically testing its predictions. Therefore, new work in behavioral labor economics may represent less of a methodological break than in other subfields of economics.
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... Finance, psychology, economics and the design of successful institutions Nathan Berg* Cecil and Ida Green Assistant Professor of Economics, University of Texas-Dallas, USA Research Scientist, Max Planck Institute for Human... more
... Finance, psychology, economics and the design of successful institutions Nathan Berg* Cecil and Ida Green Assistant Professor of Economics, University of Texas-Dallas, USA Research Scientist, Max Planck Institute for Human Development-Berlin, Germany ...
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Dynamic correlation models demonstrate that the relationship between interest rates and housing prices is non-constant. Estimates reveal statistically significant time fluctuations in correlations between housing price indexes and... more
Dynamic correlation models demonstrate that the relationship between interest rates and housing prices is non-constant. Estimates reveal statistically significant time fluctuations in correlations between housing price indexes and Treasury bonds, the S&P 500 Index, and stock prices of mortgage-related companies. In some cases, hedging effectiveness can be improved by moving from constant to dynamic hedge ratios. Empirics reported here point
Research Interests: Real Estate, Behavioral Economics, Bounded Rationality, Urban And Regional Planning, Real Estate Portfolio Management and Performance measurement, and 8 moreRisk Aversion, Statistical Significance, House Prices, Portfolio Choice, Time Dependent, Stock Price, Interest Rate, and Ecological Rationality
Non-response bias refers to the mistake one expects to make in estimating a population characteristic based on a sample of survey data in which, due to non-response, certain types of survey respondents are under-represented. Social... more
Non-response bias refers to the mistake one expects to make in estimating a population characteristic based on a sample of survey data in which, due to non-response, certain types of survey respondents are under-represented. Social scientists often attempt to make inferences about a population by drawing a random sample and studying relationships among the measurements contained in the sample. When individuals from a special subset of the population are systematically omitted from a particular sample, however, the sample cannot be said to be “random,” in the sense that every member of the population is equally likely to be included in the sample. It is important to acknowledge that any patterns uncovered in analyzing a non-random sample do not provide valid grounds for generalizing about a population in the same way that patterns present in a random sample do. The mismatch between the average characteristics of respondents in a non-random sample and the average characteristics of the population can lead to serious problems in understanding the causes of social phenomena and may lead to misdirected policy action. Therefore, considerable attention has been given to the problem of non-response bias, both at the stages of data collection and data analysis.
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Dynamic correlation models demonstrate that the relationship between interest rates and housing prices is non-constant. Estimates reveal statistically significant time fluctuations in correlations between housing price indexes and... more
Dynamic correlation models demonstrate that the relationship between interest rates and housing prices is non-constant. Estimates reveal statistically significant time fluctuations in correlations between housing price indexes and Treasury bonds, the S&P 500 Index, and stock prices of mortgage-related companies. In some cases, hedging effectiveness can be improved by moving from constant to dynamic hedge ratios. Empirics reported here point to the possibility that incorrect assumptions of constant correlation could lead to mis-pricing in the mortgage industry and beyond.