Unbiased risk estimation and scoring rules

Stein unbiased risk estimation is generalized twice, from the Gaussian shift model to nonparametric families of smooth densities, and from the quadratic risk to more general divergence type distances. The development relies on a connection with local proper scoring rules.Comment: This is the author's version of a work that was accepted for publication in Comptes rendus Mathematiqu

Local proper scoring rules of order two

Scoring rules assess the quality of probabilistic forecasts, by assigning a numerical score based on the predictive distribution and on the event or value that materializes. A scoring rule is proper if it encourages truthful reporting. It is local of order $k$ if the score depends on the predictive density only through its value and the values of its derivatives of order up to $k$ at the realizing event. Complementing fundamental recent work by Parry, Dawid and Lauritzen, we characterize the local proper scoring rules of order 2 relative to a broad class of Lebesgue densities on the real line, using a different approach. In a data example, we use local and nonlocal proper scoring rules to assess statistically postprocessed ensemble weather forecasts.Comment: Published in at http://dx.doi.org/10.1214/12-AOS973 the Annals of Statistics (http://www.imstat.org/aos/) by the Institute of Mathematical Statistics (http://www.imstat.org

Joint European development strategy

On July 27,1971, the Commission of the European Communities has submitted a memorandum on a Joint European development policy to the governments of the EEC’s member states. It has thereby called for a beginning of the discussion on cooperative action by the Communities also in the field of development policies

Strengthening Democracy in Europe and its Resilience against Autocracy: Daring more Democracy and a European Democracy Charter. Research Paper in Law 01/2019

Representative Democracy is in crisis and this not only in Europe, considering developments in the US in particular.1 EU Member States like Poland, 2 Hungary3 and Austria4 are governed by populists, some of them with autocratic tendencies.5 France is facing a crisis of political violence with “Gilets Jaunes” rampaging on its streets. Romania is riddled by corruption.6 Ever lower participation in elections and declining membership in political parties on both sides of the Atlantic document the steady decline of engagement of people in representative democracy. At the same time, the US under President Trump tries to weaken the EU7 and so does Russia, both spreading fake news, openly and covertly undermining democracy in Europe.8And the new electronic communication environment on the internet, controlled by a few mega corporations, undermines journalism and the free, privately financed press of the fourth estate. They provide not only a fertile ground for populist slogans and the mobilisation of hate and violence but also the means to manipulate voters, effectively leading to situations like the Facebook Cambridge Analytica scandal and in fine the result of the Brexit vote in the UK.9 They socialise people to instant consumption, cutting out the middlemen – and create the illusion that this is possible in democracy, as it is possible in markets, thus undermining elections, elected lawmakers and representative democracy

When Risk and Return are Not Enough: The Role of Loss Aversion in Private Investors' Choice of Mutual Fund Fee Structures

We analyze why investors chose funds with performance fees even if expected fees are higher than in a fund with a pure management fee. Performance fees are meant to influence performance positively but they can also lead to a higher fund risk. The expected higher performance cannot fully account for the height of the performance fees chosen in our survey study. Controlling for various other explanations, we find that loss aversion is a main driver for the propensity to chose a performance fee fund

Investors care about risk, but can't cope with volatility

Following the classical portfolio theory all an investor has to do for an optimal investment is to determine his risk attitude. This allows him to find his point on the capital market line by combining a risk-free asset with the market portfolio. We investigate the following research questions in an experimental set-up: Do private investors see a relationship between risk attitude and the amount invested risky at all and do they adjust their investments if provided with different risk levels of the risky asset? To answer these questions we ask subjects in a between subject design to allocate a certain amount between a risky and a risk-free asset. Risky assets differ between conditions, but can be transformed into each other by combining them with the risk-free asset. We find that mainly investors risk attitude, but also their risk perception, and the investment horizon are strong predictors for risk taking. Indeed, investors do not appear to be naïve, but they do something sensitive. Nevertheless, we observe a strong framing effect: investors choose almost the same allocation to the risky asset independently of changes in its risk-return profile thus ending up with significantly different volatilities. Feedback does not mitigate the framing effect. The effect is somewhat smaller for investors with a high financial literacy. Overall, people seem to use two mental accounts, one for the risk-free and one for the risky investment with the risk attitude determining the percentage allocation to the risky asset and not the chosen portfolio volatility