Asymmetric preference formation in willingness to pay estimates in discrete choice models

Individuals when faced with choices amongst a number of alternatives often adopt a variety of processing rules, ranging from simple linear to complex non-linear treatment of each attribute defining the offer of each alternative. In this paper we investigate the presence of asymmetry in preferences to test for reference effects and differential willingness to pay according to whether we are valuing gains or losses. The findings offer clear evidence of an asymmetrical response to increases and decreases in attributes when compared to the corresponding values for a reference alternative, where the degree of asymmetry varies across attributes and population segments

Evidence for surprise minimization over value maximization in choice behavior

Classical economic models are predicated on the idea that the ultimate aim of choice is to maximize utility or reward. In contrast, an alternative perspective highlights the fact that adaptive behavior requires agents' to model their environment and minimize surprise about the states they frequent. We propose that choice behavior can be more accurately accounted for by surprise minimization compared to reward or utility maximization alone. Minimizing surprise makes a prediction at variance with expected utility models; namely, that in addition to attaining valuable states, agents attempt to maximize the entropy over outcomes and thus 'keep their options open'. We tested this prediction using a simple binary choice paradigm and show that human decision-making is better explained by surprise minimization compared to utility maximization. Furthermore, we replicated this entropy-seeking behavior in a control task with no explicit utilities. These findings highlight a limitation of purely economic motivations in explaining choice behavior and instead emphasize the importance of belief-based motivations

Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions

As a long-time student of the public sector, I welcomed the opportunity to come to Washington as a member of the Council of Economic Advisers and later to become the Chairman of the Council, partly because it gave me an opportunity to study at first hand this immensely important part of our economy and society and to test my ideas against the reality of government in action

Optimal inference with suboptimal models:Addiction and active Bayesian inference

When casting behaviour as active (Bayesian) inference, optimal inference is defined with respect to an agent's beliefs - based on its generative model of the world. This contrasts with normative accounts of choice behaviour, in which optimal actions are considered in relation to the true structure of the environment - as opposed to the agent's beliefs about worldly states (or the task). This distinction shifts an understanding of suboptimal or pathological behaviour away from aberrant inference as such, to understanding the prior beliefs of a subject that cause them to behave less 'optimally' than our prior beliefs suggest they should behave. Put simply, suboptimal or pathological behaviour does not speak against understanding behaviour in terms of (Bayes optimal) inference, but rather calls for a more refined understanding of the subject's generative model upon which their (optimal) Bayesian inference is based. Here, we discuss this fundamental distinction and its implications for understanding optimality, bounded rationality and pathological (choice) behaviour. We illustrate our argument using addictive choice behaviour in a recently described 'limited offer' task. Our simulations of pathological choices and addictive behaviour also generate some clear hypotheses, which we hope to pursue in ongoing empirical work

Monitoring international migration flows in Europe. Towards a statistical data base combining data from different sources

The paper reviews techniques developed in demography, geography and statistics that are useful for bridging the gap between available data on international migration flows and the information required for policy making and research. The basic idea of the paper is as follows: to establish a coherent and consistent data base that contains sufficiently detailed, up-to-date and accurate information, data from several sources should be combined. That raises issues of definition and measurement, and of how to combine data from different origins properly. The issues may be tackled more easily if the statistics that are being compiled are viewed as different outcomes or manifestations of underlying stochastic processes governing migration. The link between the processes and their outcomes is described by models, the parameters of which must be estimated from the available data. That may be done within the context of socio-demographic accounting. The paper discusses the experience of the U.S. Bureau of the Census in combining migration data from several sources. It also summarizes the many efforts in Europe to establish a coherent and consistent data base on international migration. The paper was written at IIASA. It is part of the Migration Estimation Study, which is a collaborative IIASA-University of Groningen project, funded by the Netherlands Organization for Scientific Research (NWO). The project aims at developing techniques to obtain improved estimates of international migration flows by country of origin and country of destination

Rationale Marktübertreibungen im Zusammenhang der aktuellen Finanzmarktkrise

Der Untersuchungsgegenstand der Arbeit ist die Darstellung der wichtigsten Anlegermotive bei Marktübertreibungen. Es wird dabei auf Konzepte der verhaltensorientierten Kapitalmarktforschung zurückgegriffen. Basierend auf den gewonnenen Erkenntnissen werden Lösungsansätze zur Vermeidung von Marktübertreibungen abgeleitet. Untersuchungen, beispielsweise durch Bikhchandani und Sharma (2000), haben gezeigt, dass Herdenverhalten eine wichtige Rolle bei der Erklärung von Preisübertreibungen spielt. Dabei kann es rational sein, sich konform zur Masse der Marktteilnehmer zu verhalten. Neben dem Konzept des Herdenverhaltens kann Konservatismus unter Marktteilnehmern zur Bestätigung vorherrschender Trends beitragen. Heuristiken werden angewandt, um komplexe Sachverhalte zu vereinfachen. Insbesondere die Repräsentativitätsheuristik kann zu einer Verstärkung bestehender Preisübertreibungen führen. Die Autoren sind der Ansicht, dass vor allem eine Verbesserung der Informationsbasis zur Reduzierung von Fehleinschätzungen durch Marktteilnehmer beitragen kann. Sowohl die Verfügbarkeit als auch die Qualität der Informationen spielen dabei eine Rolle. Ein weiterer Lösungsansatz betrifft die Risikoeinstellung und Kreditvergabe der Banken. In Boomphasen sollte das Risiko eines Crashs berücksichtigt werden.The paper deals with the motives of people to invest in overvalued markets. We resort to the concepts of behavioural finance to describe the most important factors. Based on these findings we deduct measures to avoid misjudgement of markets participants. As Bikhchandani and Sharma (2000) show, the concept of herd behaviour plays a decisive role in explaining exuberance in markets. There are incentives for investors, money managers and analysts to imitate other's actions. Furthermore, conservatism as well as heuristics like representativeness may also lead to a confirmation of prevailing trends. Another driver of misjudgement is the usage of heuristics like representativeness. The authors consider that the provision of information may substantially contribute to the reduction of misjudgement and exuberance in markets. Both availability and quality of information are important. Another approach aims at the regulation of bank lending, which should be limited particularly during a booming economy

Group Polarization in the Team Dictator Game reconsidered

While most papers on team decision-making find teams to behave more selfish, less trusting and less altruistic than individuals, Cason and Mui (1997) report that teams are more altruistic than individuals in a dictator game. Using a within-subjects design we re-examine group polarization by letting subjects make individual as well as team decisions in an experimental dictator game. In our experiment teams are more selfish than individuals, and the most selfish team member has the strongest influence on team decisions. Various sources of the different findings in Cason and Mui (1997) and in our paper are discussed

Market Work, Home Production, Consumer Demand and Unemployment among the Unskilled

We develop a general equilibrium model in which longer working time and higher labor force participation lead to a fall in unemployment. Longer working hours and higher labor force participation have two direct effects: People have higher incomes and less (leisure) time. This has implications for the composition of consumer demand, since people spend less time on home production. Instead, they outsource more domestic tasks to the market. Consumer demand shifts toward unskill-intensive goods. The relative demand for unskilled labor rises and unemployment falls. We provide empirical evidence for our theoretical predictions in several ways: We study the link between labor market participation, home production and the demand for household and similar services using the German time use survey conducted in 1991/92. In addition, we use panel data for 23 OECD countries between 1980 and 2003 to directly examine the link between labor force participation and the unemployment rate. The empirical results corroborate the predictions from the theoretical model

Static and dynamic views of European integration

There is a theoretical and empirical need to distinguish between static support for the EU as it now is and dynamic support for further integration. Although most Europeans endorse the EU as a good thing today, the European Election Study finds no popular majority for an ever closer union, the commitment of EU institutions. Less than one-third endorses further integration and less than one-third thinks integration has gone too far. The largest group favours keeping the EU as it is. Their outlook reflects ambivalence; they see the EU as having both strengths and weaknesses. It does not reflect lack of EU knowledge or of socio-economic resources, as is the case with ‘don't knows’. While eurozone institutions are committed to further integration, most EU citizens are not. Likewise, there is no majority supporting eurosceptic demands for returning powers to national governments

Cognitive heuristics in borderline personality disorder across treatment: A longitudinal non-parametric analysis.

The development of a constructive therapeutic alliance may represent an important feature of interpersonal adaptation in clients with Borderline Personality Disorder (BPD). The present study explores cognitive heuristics as dynamic features of change in relationship with the therapeutic alliance in the treatment of BPD. In total, N = 60 clients with BPD, are included in the present study. In the context of brief therapy, the therapeutic alliance (WAI) is assessed from the client and the therapist perspectives after each therapy session; cognitive heuristics are assessed three times (CERS). The data analyses are on the basis of non-parametric clusters (kml3d) linked with the therapeutic alliance. The results showed that clusters of cognitive heuristics trajectories are linked with the client's therapeutic alliance (t(55) = 2.30, p = .03), but they remained unrelated with the evolution of the therapist's alliance. These results are discussed with regard to the interpersonal adaptiveness of cognitive heuristics in the context of BPD undergoing treatment