We elicit time and risk preferences for kidney transplantation from the entire population of patients of the largest Italian transplant centre using a discrete choice experiment (DCE). We measure patients’ willingness-to-wait (WTW), expressed in months, for receiving a kidney with one-year longer expected graft survival, or low risk of complication. Using a mixed logit in WTW-space model, we find heterogeneity in patients’ preferences. Our model allows WTW to vary with the patient’s age and duration of dialysis. The results suggest that WTW correlates with age and duration of dialysis. The implication for transplant practice is that including individual preferences in kidney allocation protocols that assign “non-ideal” (expanded donor criteria) organs may not only increase the expected survival rates of patients with transplanted organs but also improve patients’ satisfaction.
{"title":"The Role of Heterogeneity of Patients’ Preferences in Kidney Transplantation","authors":"M. Genie, Antonio Nicoló, G. Pasini","doi":"10.2139/ssrn.3428620","DOIUrl":"https://doi.org/10.2139/ssrn.3428620","url":null,"abstract":"We elicit time and risk preferences for kidney transplantation from the entire population of patients of the largest Italian transplant centre using a discrete choice experiment (DCE). We measure patients’ willingness-to-wait (WTW), expressed in months, for receiving a kidney with one-year longer expected graft survival, or low risk of complication. Using a mixed logit in WTW-space model, we find heterogeneity in patients’ preferences. Our model allows WTW to vary with the patient’s age and duration of dialysis. The results suggest that WTW correlates with age and duration of dialysis. The implication for transplant practice is that including individual preferences in kidney allocation protocols that assign “non-ideal” (expanded donor criteria) organs may not only increase the expected survival rates of patients with transplanted organs but also improve patients’ satisfaction.","PeriodicalId":281936,"journal":{"name":"ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121431514","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Economic policy uncertainty (EPU) relates to ambiguity surrounding possible changes in government policy and their associate impact on firm performance. This uncertainty places additional stress on economic agents and has implications for the global economy via delays in firm investment and hiring, and postponement of household consumption. We utilise the EPU measure of Baker et al. (2016) to investigate whether financial market uncertainty is influenced by policy uncertainty across the G7. Our empirical results show that financial market uncertainty (implied volatility) increases as economic policy uncertainty increases (and the economy weakens). This relationship holds even after controlling for macroeconomic state variables and country/time fixed effects, and is consistent for monthly and daily data frequency. The correlation of political uncertainty among countries varies over time, increasing in tranquil times of low EPU, and sharply decreasing during times of crisis. We also show that US policy uncertainty has an economic and statistically significant impact on global financial market uncertainty, a spill-over effect that is consistent with the important role that US policy decisions play in the global economy.
{"title":"How Does Policy Uncertainty Influence Financial Market Uncertainty Across the G7?","authors":"L. Smales","doi":"10.2139/ssrn.3427659","DOIUrl":"https://doi.org/10.2139/ssrn.3427659","url":null,"abstract":"Economic policy uncertainty (EPU) relates to ambiguity surrounding possible changes in government policy and their associate impact on firm performance. This uncertainty places additional stress on economic agents and has implications for the global economy via delays in firm investment and hiring, and postponement of household consumption. We utilise the EPU measure of Baker et al. (2016) to investigate whether financial market uncertainty is influenced by policy uncertainty across the G7. Our empirical results show that financial market uncertainty (implied volatility) increases as economic policy uncertainty increases (and the economy weakens). This relationship holds even after controlling for macroeconomic state variables and country/time fixed effects, and is consistent for monthly and daily data frequency. The correlation of political uncertainty among countries varies over time, increasing in tranquil times of low EPU, and sharply decreasing during times of crisis. We also show that US policy uncertainty has an economic and statistically significant impact on global financial market uncertainty, a spill-over effect that is consistent with the important role that US policy decisions play in the global economy.","PeriodicalId":281936,"journal":{"name":"ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117309242","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I explore a novel approach to preference and proposal aggregation theory. My approach relies on abstract algebra and elementary group theory. The use of abstract algebra and the notion of homomorphism not only enable the formalization of such concepts as "divergent preferences", "status quo bias", "abstention" etc. and the computation of collective proposals, but they also pave the way for the analysis of preferences that depend on publicly observed signals. Hence, the potential impact of strategies for influencing individual preferences on collective proposals can be analyzed.
{"title":"A Purely Algebraic Approach to Group Decision Making","authors":"F. Ruscitti","doi":"10.2139/ssrn.3421477","DOIUrl":"https://doi.org/10.2139/ssrn.3421477","url":null,"abstract":"I explore a novel approach to preference and proposal aggregation theory. My approach relies on abstract algebra and elementary group theory. The use of abstract algebra and the notion of homomorphism not only enable the formalization of such concepts as \"divergent preferences\", \"status quo bias\", \"abstention\" etc. and the computation of collective proposals, but they also pave the way for the analysis of preferences that depend on publicly observed signals. Hence, the potential impact of strategies for influencing individual preferences on collective proposals can be analyzed.","PeriodicalId":281936,"journal":{"name":"ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123319196","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Life‐cycle (or target‐date) funds are funds, which typically decrease their risk exposure over time. They have been very successful in many countries, particularly in the segment of old age provision. However, Expected Utility Theory (EUT) cannot explain their popularity. Moreover, recent results of Graf (2016), imply that not only EUT but also its behavioral counterpart Cumulative Prospect Theory (CPT) is often not able to explain the popularity of these products, since for each life‐cycle fund a corresponding balanced fund can be constructed, which is preferable from the investor's perspective in most circumstances. In a recent paper, Ruß and Schelling (2018), have argued that potential future changes in an investment's value already impact the decision of long‐term investors at outset. Based on this, they have introduced Multi Cumulative Prospect Theory (MCPT), which is based on CPT and considers the subjective utility generated by annual value changes. This paper shows that for MCPT‐investors, life‐cycle funds are typically more attractive than their corresponding balanced funds since they reduce the potential losses toward the end of the investment horizon. Hence, our findings provide an explanation for inferior decisions in old age provision. This can serve as a basis to improve such decisions.
{"title":"As You Like it: Explaining the Popularity of Life‐Cycle Funds with Multi Cumulative Prospect Theory","authors":"Stefan Graf, Jochen Russ, Stefan Schelling","doi":"10.1111/rmir.12122","DOIUrl":"https://doi.org/10.1111/rmir.12122","url":null,"abstract":"Life‐cycle (or target‐date) funds are funds, which typically decrease their risk exposure over time. They have been very successful in many countries, particularly in the segment of old age provision. However, Expected Utility Theory (EUT) cannot explain their popularity. Moreover, recent results of Graf (2016), imply that not only EUT but also its behavioral counterpart Cumulative Prospect Theory (CPT) is often not able to explain the popularity of these products, since for each life‐cycle fund a corresponding balanced fund can be constructed, which is preferable from the investor's perspective in most circumstances. In a recent paper, Ruß and Schelling (2018), have argued that potential future changes in an investment's value already impact the decision of long‐term investors at outset. Based on this, they have introduced Multi Cumulative Prospect Theory (MCPT), which is based on CPT and considers the subjective utility generated by annual value changes. This paper shows that for MCPT‐investors, life‐cycle funds are typically more attractive than their corresponding balanced funds since they reduce the potential losses toward the end of the investment horizon. Hence, our findings provide an explanation for inferior decisions in old age provision. This can serve as a basis to improve such decisions.","PeriodicalId":281936,"journal":{"name":"ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128569110","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Risk parity is portfolio construction technique that, using risk alone, scales each part of a portfolio — e.g., stocks, bonds, currencies, commodities — so that its contribution to net portfolio risk matches its budgeted risk. Because risks are measured using a point-estimate of covariance, the method is subject to problems of estimation error. This paper performs risk parity with covariance modeled as uncertain in order to achieve a weighting robust to changes in regime and hidden risks from misperceived hedging. The uncertain risk contributions, calculated en route, have value well beyond risk parity. Reporting a portfolio’s “uncertain risk decomposition” reveals the range around numbers and, more important, the risks that arise from inexact knowledge, e.g., market’s going from invisible to the biggest latent risk.
{"title":"Uncertain Risk Parity","authors":"Anish Shah","doi":"10.2139/ssrn.3406321","DOIUrl":"https://doi.org/10.2139/ssrn.3406321","url":null,"abstract":"Risk parity is portfolio construction technique that, using risk alone, scales each part of a portfolio — e.g., stocks, bonds, currencies, commodities — so that its contribution to net portfolio risk matches its budgeted risk. Because risks are measured using a point-estimate of covariance, the method is subject to problems of estimation error. This paper performs risk parity with covariance modeled as uncertain in order to achieve a weighting robust to changes in regime and hidden risks from misperceived hedging. \u0000 \u0000The uncertain risk contributions, calculated en route, have value well beyond risk parity. Reporting a portfolio’s “uncertain risk decomposition” reveals the range around numbers and, more important, the risks that arise from inexact knowledge, e.g., market’s going from invisible to the biggest latent risk.","PeriodicalId":281936,"journal":{"name":"ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130757349","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
According to the field of quantum cognition, a decision to act is best expressed as a quantum process, where entangled ideas and feelings combine and interfere in the mind to produce a complex, context-dependent response. While the quantum approach has proved successful at modelling many aspects of human behaviour, it is less clear how relevant this is to the economy. This paper argues that the financial system is characterised by three kinds of entanglement: at the individual level between concepts, at the social level with other people, and at the financial level through the use of credit. These entanglements combine in such a way that cognitive processes at the individual level scale up to affect the economy as a whole, in a manner which is best modelled using quantum techniques. The approach is illustrated by making a retroactive “postdiction” about the prevalence of strategic mortgage default during the financial crisis, and a prediction for future such crises.
{"title":"Quantum Financial Entanglement: The Case of Strategic Default","authors":"D. Orrell","doi":"10.2139/ssrn.3394550","DOIUrl":"https://doi.org/10.2139/ssrn.3394550","url":null,"abstract":"According to the field of quantum cognition, a decision to act is best expressed as a quantum process, where entangled ideas and feelings combine and interfere in the mind to produce a complex, context-dependent response. While the quantum approach has proved successful at modelling many aspects of human behaviour, it is less clear how relevant this is to the economy. This paper argues that the financial system is characterised by three kinds of entanglement: at the individual level between concepts, at the social level with other people, and at the financial level through the use of credit. These entanglements combine in such a way that cognitive processes at the individual level scale up to affect the economy as a whole, in a manner which is best modelled using quantum techniques. The approach is illustrated by making a retroactive “postdiction” about the prevalence of strategic mortgage default during the financial crisis, and a prediction for future such crises.","PeriodicalId":281936,"journal":{"name":"ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124553265","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A (partially naïve) quasi-hyperbolic discounter repeatedly chooses whether to complete a task. Her net benefits of task completion are drawn independently between periods from a time-invariant distribution. We show that the probability of completing the task conditional on not having done so earlier increases towards the deadline. Conversely, we establish nonidentifiability by proving that for any time-preference parameters and any dataset with such (weakly increasing) task-completion probabilities, there exists a stationary payoff distribution that rationalizes the agent’s behavior if she is either sophisticated or fully naïve. Additionally, we provide sharp partial identification for the case of observable continuation values. (JEL C14, D11, D15, D90, D91)
{"title":"Identifying Present Bias from the Timing of Choices","authors":"Paul Heidhues, P. Strack","doi":"10.2139/ssrn.3386017","DOIUrl":"https://doi.org/10.2139/ssrn.3386017","url":null,"abstract":"A (partially naïve) quasi-hyperbolic discounter repeatedly chooses whether to complete a task. Her net benefits of task completion are drawn independently between periods from a time-invariant distribution. We show that the probability of completing the task conditional on not having done so earlier increases towards the deadline. Conversely, we establish nonidentifiability by proving that for any time-preference parameters and any dataset with such (weakly increasing) task-completion probabilities, there exists a stationary payoff distribution that rationalizes the agent’s behavior if she is either sophisticated or fully naïve. Additionally, we provide sharp partial identification for the case of observable continuation values. (JEL C14, D11, D15, D90, D91)","PeriodicalId":281936,"journal":{"name":"ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121628975","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A market for matching participants with each other, such as buyers and sellers of labor, faces two challenges: efficiently coordinating information acquisition processes such as job interviews; and efficiently coordinating high-value matches. We propose a general descending-price market design called the Marshallian Match. In contrast to existing ascending or deferred-acceptance style proposals, the descending-price design is compatible with optimal search theory, allowing it to address both challenges.
{"title":"Matching Markets via Descending Price","authors":"Bo Waggoner, E. Weyl","doi":"10.2139/ssrn.3373934","DOIUrl":"https://doi.org/10.2139/ssrn.3373934","url":null,"abstract":"A market for matching participants with each other, such as buyers and sellers of labor, faces two challenges: efficiently coordinating information acquisition processes such as job interviews; and efficiently coordinating high-value matches. We propose a general descending-price market design called the Marshallian Match. In contrast to existing ascending or deferred-acceptance style proposals, the descending-price design is compatible with optimal search theory, allowing it to address both challenges.","PeriodicalId":281936,"journal":{"name":"ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)","volume":"90 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-04-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125111808","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Nash (1950) and Rubinstein (1982) give two different justifications for a 50-50 split of surplus to be the outcome of bargaining with two players. Nash's axioms extend to n players, but the search for a satisfactory n-player non-cooperative game theory model of bargaining has been fruitless. I offer a simple static model that reaches a 50-50 split (or 1/n) as the unique equilibrium. Each player chooses a "toughness level" simultaneously, but greater toughness always generates a risk of breakdown. Introducing asymmetry, a player who is more risk averse gets a smaller share in equilibrium. "Bargaining strength" can also be parameterized to yield an asymmetric split. The model can be expanded to resemble Rubinstein (1982) by making breakdown mere delay, but with an exact 50-50 split if the player's discount rates are equal. The model only needs minimal assumptions on breakdown probability and pie division as functions of toughness and has a clear intuition: whoever has a bigger share loses more from breakdown and hence has less incentive to be tough.
{"title":"Back to Bargaining Basics: A Simple 50-50 Model for Splitting a Pie","authors":"E. Rasmusen","doi":"10.2139/ssrn.3362093","DOIUrl":"https://doi.org/10.2139/ssrn.3362093","url":null,"abstract":"Nash (1950) and Rubinstein (1982) give two different justifications for a 50-50 split of surplus to be the outcome of bargaining with two players. Nash's axioms extend to <i>n</i> players, but the search for a satisfactory <i>n</i>-player non-cooperative game theory model of bargaining has been fruitless. I offer a simple static model that reaches a 50-50 split (or <i>1/n</i>) as the unique equilibrium. Each player chooses a \"toughness level\" simultaneously, but greater toughness always generates a risk of breakdown. Introducing asymmetry, a player who is more risk averse gets a smaller share in equilibrium. \"Bargaining strength\" can also be parameterized to yield an asymmetric split. The model can be expanded to resemble Rubinstein (1982) by making breakdown mere delay, but with an exact 50-50 split if the player's discount rates are equal. The model only needs minimal assumptions on breakdown probability and pie division as functions of toughness and has a clear intuition: whoever has a bigger share loses more from breakdown and hence has less incentive to be tough.","PeriodicalId":281936,"journal":{"name":"ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128337348","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we provide an axiomatic characterization of the maxmin choice correspondence for a decision maker who has state-dependent preferences (represented by a linear order) over the set of alternatives.
{"title":"Maximin Fixed Agenda Choice Correspondence","authors":"S. Lahiri","doi":"10.2139/ssrn.3357665","DOIUrl":"https://doi.org/10.2139/ssrn.3357665","url":null,"abstract":"In this paper we provide an axiomatic characterization of the maxmin choice correspondence for a decision maker who has state-dependent preferences (represented by a linear order) over the set of alternatives.","PeriodicalId":281936,"journal":{"name":"ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131453179","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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