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Behavioral Economics Commons

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Uncertainty

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Full-Text Articles in Behavioral Economics

Tax Uncertainty And Business Activity, Jungho Lee, Jianhuan Xu Jun 2019

Tax Uncertainty And Business Activity, Jungho Lee, Jianhuan Xu

Research Collection School Of Economics

We investigate the extent to which uncertainties about tax policies affect business activities. We develop a statewide tax-uncertainty measure (TU measure) and show that it captures state corporate tax uncertainty. By comparing adjacent counties across state borders, we show that increasing tax uncertainty by one standard deviation (a 30% increase in the TU measure) leads to a 0.17% point per-year decrease in the growth rate of establishments over two years. The result holds after conducting a variety of robustness checks and is not likely to be driven by general state-policy uncertainties.


Three Essays On Uncertainty In Social Dilemmas, Abdul Kidwai Jan 2019

Three Essays On Uncertainty In Social Dilemmas, Abdul Kidwai

Doctoral Dissertations

Social dilemmas are settings where the interest of the individual is at odds with those of society i.e. overharvesting in a fishery, not contributing to a public good. These dilemmas are widespread and take myriad forms with public goods and common-pool resources being the most prominent ones. The purpose of this dissertation is to examine how individual behavior is impacted by the presence of uncertainty in public goods and common-pool resources. These dilemmas exhibit two types of uncertainty, strategic and environmental. Strategic uncertainty refers to uncertainty about the actions of other individuals facing the dilemma i.e. will other ...


Emotions, Intuitions And Risk Perception In Critical Care, Oleksandr Dubov Jan 2017

Emotions, Intuitions And Risk Perception In Critical Care, Oleksandr Dubov

Electronic Theses and Dissertations

The theory of decision-making as it applies to bioethics and healthcare assumes a rational decision maker: someone who knows all his alternatives, has clear preferences, can rank and weigh risks and benefits of an intervention, and always acts in his own best interests. However, the growing body of research from the field of decision science shows that, in reality, such a purely rational decision maker does not exist. Instead, patients are rational within personal or environmental constraints such as uncertainty or ambiguity in which non-rational approaches such as emotion and intuition are instrumental. This issue is particularly important in critical ...


American Obesity: Rooted In Uncertainty, Institutions And Public Policy, James Woodward Jan 2016

American Obesity: Rooted In Uncertainty, Institutions And Public Policy, James Woodward

Theses and Dissertations--Public Policy and Administration

Despite the efforts of policymakers, medical professionals, and other stakeholders, obesity and related health problems show no signs of receding from their record-high rates. Public policy has largely taken the form of consumer advice, (e.g., USDA’s Dietary Guidelines). Since consumers bear most of the costs associated with their obesity, the goal of obesity prevention appears to be incentive-compatible, prima facie. That is, there is no a priori case for much further policy intervention unless existing advice is deficient or consumers’ exhibit systematically poor decision-making.

My review of the literature shows that scholars have long conveyed a consistent narrative ...


Golden Rule Of Forecasting: Be Conservative, J. Scott Armstrong, Kesten C. Green, Andreas Graefe Aug 2015

Golden Rule Of Forecasting: Be Conservative, J. Scott Armstrong, Kesten C. Green, Andreas Graefe

Marketing Papers

This article proposes a unifying theory, or the Golden Rule, or forecasting. The Golden Rule of Forecasting is to be conservative. A conservative forecast is consistent with cumulative knowledge about the present and the past. To be conservative, forecasters must seek out and use all knowledge relevant to the problem, including knowledge of methods validated for the situation.

Twenty-eight guidelines are logically deduced from the Golden Rule. A review of evidence identified 105 papers with experimental comparisons; 102 support the guidelines. Ignoring a single guideline increased forecast error by more than two-fifths on average. Ignoring the Golden Rule is likely ...


Ethics And The Economist: What Climate Change Demands Of Us, Julie A. Nelson Jan 2013

Ethics And The Economist: What Climate Change Demands Of Us, Julie A. Nelson

Economics Faculty Publication Series

Climate change is changing not only our physical world, but also our intellectual, social, and moral worlds. We are realizing that our situation is profoundly unsafe, interdependent, and uncertain. What, then, does climate change demand of economists, as human beings and as professionals? A discipline of economics based on Enlightenment notions of mechanism and disembodied rationality is not suited to present problems. This essay suggests three major requirements: first, that we take action; second, that we work together; and third, that we focus on avoiding the worst, rather than obtaining the optimal. The essay concludes with suggestions of specific steps ...


Modelling Biased Judgement With Weighted Updating, Jesse A. Zinn Jan 2013

Modelling Biased Judgement With Weighted Updating, Jesse A. Zinn

Jesse A Zinn

The weighted updating model is a generalization of Bayesian updating that allows for biased beliefs by weighting the functions that constitute Bayes’ rule with real exponents. This paper shows that weighting a distribution affects the information entropy of the resulting distribution, suggesting that weighted updating can model biases in which individuals mistake the information content of data. The paper augments the base model in two ways, allowing it to account for additional biases. The first expansion involves discrimination between data. The second allows the weights to vary over time. The paper also presents a set of sufficient conditions for the ...


Arrow-Fisher-Hanemann-Henry And Dixit-Pindyck Option Values Under Strategic Interactions, Tomoki Fujii, Ryuichiro Ishikawa Jan 2013

Arrow-Fisher-Hanemann-Henry And Dixit-Pindyck Option Values Under Strategic Interactions, Tomoki Fujii, Ryuichiro Ishikawa

Research Collection School Of Economics

We extend the Arrow–Fisher–Hanemann–Henry (AFHH) and Dixit–Pindyck (DP) option values to a game situation. By reinterpreting the AFHH option value as a change in the surplus from conservation because of the prospect of future information, we deal with a conceptual difficulty associated with the AFHH option value in the presence of strategic interactions. We then introduce the DP option value into a game situation. We show that the equivalence between the expected value of information and the DP option value in the standard model does not hold under strategic interactions.


Ethics And The Economist: What Climate Change Demands Of Us, Julie A. Nelson Dec 2012

Ethics And The Economist: What Climate Change Demands Of Us, Julie A. Nelson

Julie A. Nelson

Climate change is changing not only our physical world, but also our intellectual, social, and moral worlds. We are realizing that our situation is profoundly unsafe, interdependent, and uncertain. What, then, does climate change demand of economists, as human beings and as professionals? A discipline of economics based on Enlightenment notions of mechanism and disembodied rationality is not suited to present problems. This essay suggests three major requirements: first, that we take action; second, that we work together; and third, that we focus on avoiding the worst, rather than obtaining the optimal. The essay concludes with suggestions of specific steps ...


Quasi-Option Value Under Strategic Interactions, Tomoki Fujii, Ryuichiro Ishikawa Jan 2012

Quasi-Option Value Under Strategic Interactions, Tomoki Fujii, Ryuichiro Ishikawa

Research Collection School Of Economics

We consider a simple two-period model of irreversible investment under strategic interactions between two players. In this setup, we show that the quasi-option value may cause some conceptual difficulties. In case of asymmetric information, decentralized investment decisions fail to induce first-best allocations. Therefore a regulator may not be able to exercise the option to delay the decision to develop. We also show that information-induced inefficiency may arise in a game situation and that under certain assumptions inefficiency can be eliminated by sending asymmetric information to the players, even when the regulator faces informational constraints. Our model is potentially applicable to ...


Arrow-Fisher-Hanemann-Henry And Dixit-Pindyck Option Values Under Strategic Interactions, Tomoki Fujii, Ryuichiro Ishikawa Nov 2011

Arrow-Fisher-Hanemann-Henry And Dixit-Pindyck Option Values Under Strategic Interactions, Tomoki Fujii, Ryuichiro Ishikawa

Research Collection School Of Economics

We extend the Arrow-Fisher-Hanemann-Henry (AFHH) and Dixit-Pindyck (DP) option values to game situations. By reinterpreting the AFHH option value as a change in the surplus from conservation because of the prospect of future information, we deal with the conceptual difficulty associated with the AFHH option value in the presence of strategic interactions. We then introduce the DP option value into a game situation. We show that the equivalence between the expected value of information and the DP option value in the standard model does not hold under strategic interactions.


Perspectives On Firm Decision Making During Risky Technology Acquisitions, Adam C. Powell May 2011

Perspectives On Firm Decision Making During Risky Technology Acquisitions, Adam C. Powell

Publicly Accessible Penn Dissertations

A novel survey dataset on computed tomography (CT) machine acquisition is used to explore which theories best answer two questions from the decision making literature. First, what determines how much uncertainty a firm has when investing in updated technology? Second, what determines the value of the acquisition? In answering these questions, two theoretical comparisons are conducted. In the first, economic theory, behavioral theory (the Behavioral Theory of the Firm and Prospect Theory), and Bounded Rationality are tested as potential determinants of acquisition uncertainties. In the second, economic theory and Prospect Theory are tested as potential determinants of the value of ...


Reflexivity In Financial Markets: A Neuroeconomic Examination Of Uncertainty And Cognition In Financial Markets, Steven Pikelny Jan 2011

Reflexivity In Financial Markets: A Neuroeconomic Examination Of Uncertainty And Cognition In Financial Markets, Steven Pikelny

Senior Projects Spring 2011

Financial markets exist to disperse the risks of an unknown future in an economy. But for this process to work in an optimal fashion, investors – and subsequently markets – must have a way to interpret uncertainty. The investor rationality and market efficiency literature utilizes a methodology inadequate to address this fact, so I supplement it with the perspectives of epistemology, economic sociology, neuroscience, cognitive science, and philosophy of mind. This approach suggests that what is commonly viewed as market “inefficiency” is not necessarily caused by investor irrationality, but rather by the inherent nature of the epistemological problem faced by investors. I ...


Quasi-Option Value Under Strategic Interactions, Tomoki Fujii, Ryuichiro Ishikawa Jan 2011

Quasi-Option Value Under Strategic Interactions, Tomoki Fujii, Ryuichiro Ishikawa

Research Collection School Of Economics

We consider a simple two-period model of irreversible investment under strategic interactions between two players. In this setup, we show that the quasi-option value may cause some conceptual difficulties. In case of asymmetric information, decentralized investment decisions fail to induce first-best allocations. Therefore a regulator may not be able to exercise the option to delay the decision to develop. We also show that information-induced inefficiency may arise in a game situation and that under certain assumptions inefficiency can be eliminated by sending asymmetric information to the players, even when the regulator faces informational constraints. Our model is potentially applicable to ...


Essays On The Information Acquisition Of Doubt-Prone Decision Makers, Larbi Alaoui May 2010

Essays On The Information Acquisition Of Doubt-Prone Decision Makers, Larbi Alaoui

Publicly Accessible Penn Dissertations

There are many situations in which individuals have a choice of whether or not to observe the eventual outcome. In these instances, individuals often prefer to avoid observing the outcome. The standard von Neumann-Morgenstern (vNM) Expected Utility model cannot accommodate these cases, since it does not distinguish between lotteries for which outcomes are observed by the agent and lotteries for which they are not. I develop an axiomatic model that admits preferences for observing the outcome or remaining in doubt. I then use this model to analyze the connection between the agent's attitude towards risk, doubt, and what I ...


The Income Method Of Valuation: A False Analogy Between Bonds And Stocks, Michael Sack Elmaleh Jul 2003

The Income Method Of Valuation: A False Analogy Between Bonds And Stocks, Michael Sack Elmaleh

Michael Sack Elmaleh

The discounting of future income streams by a risk adjusted rate of return by proponents of the income method reflects a misplaced faith in the ability to project accurately future income streams and pick out the “right” rate of return. Future income streams are fairly reliably predictable when analyzing a debt instrument. However, equity investment future income streams are notoriously unpredictable. Similarly assessing the risk associated with realizing returns from a fixed security is comparatively easy in comparison with assessing the risks associated with equity returns. The widely used Beta has not proved to be a very stable measure of ...


Czech Voucher Privatization: A Case Of Decision Making Under Uncertainty, Katia Hristova Jan 2002

Czech Voucher Privatization: A Case Of Decision Making Under Uncertainty, Katia Hristova

University Avenue Undergraduate Journal of Economics

In my study, I plan to analyze voucher privatization in the Czech Republic. This process is best characterized as decision making under both risk and uncertainty, where the thousands of individuals who initially received vouchers were operating under near total uncertainty while larger institutional investors who later seized control of the vouchers were operating under conditions of risk. I will analyze the resulting patterns of ownership in comparison to the goals of the process. I will also discuss the role of the International Monetary Fund and World Bank as institutions which affect the conditions under which voucher privatization was conducted ...


Information In Ultimatum Games: An Experimental Study, Rachel Croson Aug 1996

Information In Ultimatum Games: An Experimental Study, Rachel Croson

Operations, Information and Decisions Papers

This study reports on an experiment using variations of the ultimatum game. The experiment controls the amount and type of information known to the responder in the game. In two treatments, she knows both the absolute (money) and relative (fairness) payoffs from an offer. In the other two, she knows either only the absolute or only the relative payoffs. The predictions of four models for these treatments are tested: subgame-perfection, Bolton's comparative equilibrium, Ochs and Roth's absolute threshold, and Ochs and Roth's percentage threshold hypothesis.


Estimation Risk When Theory Meets Reality, Sergio H. Lence, Dermot J. Hayes Jun 1993

Estimation Risk When Theory Meets Reality, Sergio H. Lence, Dermot J. Hayes

CARD Working Papers

Estimation risk occurs in the almost universal situation where parameters of importance for decision making are not known with certainty. Bayes' criterion is the procedure consistent with expected utility maximization in the presence of estimation risk. Three interrelated problems in the presence of estimation risk are analyzed: (i) the choice of the utility-maximizing decision rule in a mean-variance framework, (ii) the calculation of certainty equivalent returns, and (iii) the valuation of additional sample information.


Forward-Looking Competitive Firm Under Uncertainty, Sergio H. Lence, Dermot J. Hayes Jun 1993

Forward-Looking Competitive Firm Under Uncertainty, Sergio H. Lence, Dermot J. Hayes

CARD Working Papers

This study of the firm under uncertainty relaxes the standard single production cycle assumption. Under realistic circumstances, a forward-looking risk-averse firm will produce more than a risk-neutral firm, and an increase in the mean-preserving price spread will increase the risk-averse firm's production. These results depend on firms realizing that the prices of inputs required for production in subsequent periods are correlated with the prices of current output.

There are two important implications of this work. First, empirical work should not assume, nor should it find a monotonic relationship between output and the level of risk or risk aversion. Secondly ...