Social and Behavioral Sciences Commons^™

So How To Make Group Decisions? Arrow's Impossibility Theorem 70 Years After, Hung T. Nguyen, Olga Kosheleva, Vladik Kreinovich

Departmental Technical Reports (CS)

In 1951, Kenneth Arrow proved that it is not possible to have a group decision making procedure that satisfies reasonable requirements like fairness. From the theoretical viewpoint, this is a great result -- well-deserving the Nobel Prize that was awarded to Professor Arrow. However, from the practical viewpoint, the question remains -- so how should we make group decisions? A usual way to solve this problem is to provide some reasonable heuristic ideas, but the problem is that different seemingly reasonable idea often lead to different group decision -- this is known, e.g., for different voting schemes. In this paper, …

Is It Fair That Advanced Workers Get Paid Disproportionally More: Economic Analysis, Olga Kosheleva, Sean R. Aguilar

Departmental Technical Reports (CS)

On the one hand, everyone agrees that economics should be fair, that workers should get equal pay for equal work. Any instance of unfairness causes a strong disagreement. On the other hand, in many companies, advanced workers -- who produce more than others -- get paid dispropotionally more for their work, and this does not seem to cause any negative feelings. In this paper, we analyze this situation from the economic viewpoint. We show that from this viewpoint, additional payments for advanced workers indeed make economic sense, benefit everyone, and thus -- in contrast to the naive literal interpretation of …

What Is Wrong With Micromanagement: Economic View, Sean R. Aguilar, Olga Kosheleva

Departmental Technical Reports (CS)

Purpose: It is well known that micromanagement -- excessive control of employees -- is detrimental to the employees' morale and thus, decreases their productivity. But what if the managers keep people happy -- will there still be negative consequences of micromanagement? This is the problem analyzed in this paper.

Design/methodology/approach: To analyze our problem, we use general -- but simplified -- mathematical models of how productivity depends on the working rate.

Findings: We show that even in the absence of psychological discomfort, micromanagement is still detrimental to productivity. Interestingly, the negative effect of micromanagement increases as the population becomes more …

Randomized Tax Deadlines Can Help Economy, Julio C. Urenda, Olga Kosheleva

Departmental Technical Reports (CS)

Purpose: While the main purpose of reporting -- e.g., reporting for taxes -- is to gauge the economic state of a company, the fact that reporting is done at pre-determined dates distorts the reporting results. For example, to create a larger impression of their productivity, companies fire temporary workers before the reporting date and re-hire then right away. The purpose of this study is to decide how to avoid such distortion.

Design/methodology/approach: We want to make our solution applicable for all possible reasonable optimality criteria. Thus, we use a general formalism for describing and analyzing all such criteria.

Findings: We …

When To Stop Computing And Start Investing, Sean R. Aguilar, Olga Kosheleva

Departmental Technical Reports (CS)

Purpose: The purpose of the study is to analyze when -- while predicting the future price of a financial instrument -- we should stop computations and start using this information for the actual investment.

Design/methodology/approach: We derive the explicit formulas explaining how the resulting gain depends on the duration of computations.

Findings: We provide an algorithm that enables us to decide the computation time that leads to the largest possible gain.

Originality/value: To the best of our knowledge, this is the first solution to the problem. Following our recommendations will allow investors to select the computation time for which the …

Need For Diversity In Elected Decision-Making Bodies: Economics-Related Analysis, Nguyen Ngoc Thach, Olga Kosheleva, Vladik Kreinovich

Departmental Technical Reports (CS)

On a qualitative level, everyone understands the need to have diversity in elected decision-making bodies, so that the viewpoint of each group be properly taken into account. However, when only the usual economic criteria are used in this election -- e.g., in the election of company's board -- the resulting bodies often under-represent some groups (e.g., women). A frequent way to remedy this situation is to artificially enforce diversity instead of strictly following purely economic criteria. In this paper, we show the current seeming contradiction between economics and diversity is caused by the imperfection of the use economic models: in …

How Can Econometrics Help Fight The Covid'19 Pandemic?, Kevin Alvarez, Vladik Kreinovich

Departmental Technical Reports (CS)

The current pandemic is difficult to model -- and thus, difficult to control. In contrast to the previous epidemics whose dynamics was smooth and well described by the existing models, the statistics of the current pandemic is highly oscillating. In this paper, we show that these oscillations can be explained if we take into account the disease's long incubation period -- as a result of which our control measures are determined by outdated data, showing number of infected people two weeks ago. To better control the pandemic, we propose to use the experience of economics, where also the effect of …

Why Quadratic Log-Log Dependence Is Ubiquitous And What Next, Sean R. Aguilar, Vladik Kreinovich, Uyen Pham

Departmental Technical Reports (CS)

In many real-life situations ranging from financial to volcanic data, growth is described either by a power law -- which is linear in log-log scale, or by a quadratic dependence in the log-log scale. In this paper, we use natural scale invariance requirement to explain the ubiquity of such dependencies. We also explain what should be a reasonable choice of the next model, if quadratic turns out to be not too accurate: it turns out that under scale invariance, the next class of models are cubic dependencies in the log-log scale, then fourth order dependencies, etc.

Decision Making Under Interval Uncertainty Revisited, Olga Kosheleva, Vladik Kreinovich, Uyen Pham

Departmental Technical Reports (CS)

In many real-life situations, we do not know the exact values of the expected gain corresponding to different possible actions, we only have lower and upper bounds on these gains -- i.e., in effect, intervals of possible gain values. How can we made decisions under such interval uncertainty? In this paper, we show that natural requirements lead to a 2-parametric family of possible decision-making strategies.

Economics Of Reciprocity And Temptation, Laxman Bokati, Olga Kosheleva, Vladik Kreinovich, Nguyen Ngoc Thach

Departmental Technical Reports (CS)

Behavioral economics has shown that in many situations, people's behavior differs from what is predicted by simple traditional utility-maximization economic models. It is therefore desirable to be able to accurately describe people's actual behavior. In some cases, the difference from the traditional models is caused by bounded rationality -- our limited ability to process information and to come up with a truly optimal solutions. In such cases, predicting people's behavior is difficult. In other cases, however, people actually optimize -- but the actual expression for utility is more complicated than in the traditional models. In such case, it is, in …

Commonsense Explanations Of Sparsity, Zipf Law, And Nash's Bargaining Solution, Olga Kosheleva, Vladik Kreinovich, Kittawit Autchariyapanitkul

Departmental Technical Reports (CS)

As econometric models become more and more accurate and more and more mathematically complex, they also become less and less intuitively clear and convincing. To make these models more convincing, it is desirable to supplement the corresponding mathematics with commonsense explanations. In this paper, we provide such explanation for three economics-related concepts: sparsity (as in LASSO), Zipf's Law, and Nash's bargaining solution.

How To Explain The Anchoring Formula In Behavioral Economics, Laxman Bokati, Vladik Kreinovich, Chon Van Le

Departmental Technical Reports (CS)

According to the traditional economics, the price that a person is willing to pay for an item should be uniquely determined by the value that this person will get from this item, it should not depend, e.g., on the asking price proposed by the seller. In reality, the price that a person is willing to pay does depend on the asking price; this is known as the anchoring effect. In this paper, we provide a natural justification for the empirical formula that describes this effect.

Quantum (And More General) Models Of Research Collaboration, Oscar Galindo, Miroslav Svitek, Vladik Kreinovich

Departmental Technical Reports (CS)

In the last decades, several papers have shown that quantum techniques can be successful in describing not only events in the micro-scale physical world -- for which they were originally invented -- but also in describing social phenomena, e.g., different economic processes. In our previous paper, we provide an explanation for this somewhat surprising successes. In this paper, we extend this explanation and show that quantum (and more general) techniques can also be used to model research collaboration.

Predictably (Boundedly) Rational: Examples Of Seemingly Irrational Behavior Can Be Quantitatively Explained By Bounded Rationality, Laxman Bokati, Olga Kosheleva, Vladik Kreinovich

Departmental Technical Reports (CS)

Traditional economics is based on the simplifying assumption that people behave perfectly rationally, that before making any decision, a person thoroughly analyzes all possible situations. In reality, we often do not have enough time to thoroughly analyze all the available information, as a result of which we make decisions of bounded rationality -- bounded by our inability to perform a thorough analysis of the situation. So, to predict human behavior, it is desirable to study how people actually make decisions. The corresponding area of economics is known as behavioral economics. It is known that many examples of seemingly irrational behavior …

Why Top Experts Are Paid So Much: Economics-Based Explanation, Julio C. Urenda, Vladik Kreinovich

Departmental Technical Reports (CS)

At first glance, it seems that people should be paid in proportion to their contribution, so if one person produces a little more than the other one, he/she should be paid a little more. In reality, however, top performers are paid dis-proportionally more than those whose performance is slightly worse. How can we explain this from an economic viewpoint? We show that actually there is no paradox here: a simple economic analysis shows that in many area, it makes perfect economic sense to pay much more to top performers.

How To Organize Conferences: Systems Approach, Olga Kosheleva, Vladik Kreinovich

Departmental Technical Reports (CS)

Research conferences are often organized by volunteers, namely, by people who are specialists in research but not in conference organization. As a result, some conferences are very successful, while some are not very successful. It is therefore desirable to provide newbie conference organizers with helpful recommendations. In this article, based on the experience of a successful recent conference, we provide the corresponding basic recommendations -- as well as their general-system explanation.

Maximum Entropy Approach To Portfolio Optimization: Economic Justification Of An Intuitive Diversity Idea, Laxman Bokati, Vladik Kreinovich

Departmental Technical Reports (CS)

The traditional Markowitz approach to portfolio optimization assumes that we know the means, variances, and covariances of the return rates of all the financial instruments. In some practical situations, however, we do not have enough information to determine the variances and covariances, we only know the means. To provide a reasonable portfolio allocation for such cases, researchers proposed a heuristic maximum entropy approach. In this paper, we provide an economic justification for this heuristic idea.

Use Of Symmetries In Economics: An Overview, Vladik Kreinovich, Olga Kosheleva, Nguyen N. Thach, Nguyen Duc Trung

Departmental Technical Reports (CS)

In this paper, we show that many semi-heuristic econometric formulas can be derived from the natural symmetry requirements. The list of such formulas includes many famous formulas provided by Nobel-prize winners, such as Hurwicz optimism-pessimism criterion for decision making under uncertainty, McFadden's formula for probabilistic decision making, Nash's formula for bargaining solution -- as well as Cobb-Douglas formula for production, gravity model for trade, etc.

Bhutan Landscape Anomaly: Possible Effect On Himalayan Economy (In View Of Optimal Description Of Elevation Profiles), Thach N. Nguyen, Laxman Bokati, Aaron A. Velasco, Vladik Kreinovich

Departmental Technical Reports (CS)

Economies of countries located in seismic zones are strongly effected by this seismicity. If we underestimate the seismic activity, then a reasonably routine earthquake can severely damage the existing structures and thus, lead to huge economic losses. On the other hand, if we overestimate the seismic activity, we waste a lot of resources on unnecessarily fortifying all the buildings -- and this too harms the economies. From this viewpoint, it is desirable to have estimations of regional seismic activities which are as accurate as possible. Current predictions are mostly based on the standard geophysical understanding of earthquakes as being largely …

Preferences (Partial Pre-Orders) On Complex Numbers -- In View Of Possible Use In Quantum Econometrics, Songsak Sriboonchitta, Vladik Kreinovich, Olga Kosheleva

Departmental Technical Reports (CS)

In economic application, it is desirable to find an optimal solution -- i.e., a solution which is preferable to any other possible solution. Traditionally, the state of an economic system has been described by real-valued quantities such as profit, unemployment level, etc. For such quantities, preferences correspond to natural order between real numbers: all things being equal, the more profit the better, and the smaller unemployment, the better. Lately, it turned out that to adequately describe economic phenomena, it is often convenient to use complex numbers. From this viewpoint, a natural question is: what are possible orders on complex numbers? …

How To Best Apply Neural Networks In Geosciences: Towards Optimal "Averaging" In Dropout Training, Afshin Gholamy, Justin Parra, Vladik Kreinovich, Olac Fuentes, Elizabeth Y. Anthony

Departmental Technical Reports (CS)

The main objectives of geosciences is to find the current state of the Earth -- i.e., solve the corresponding inverse problems -- and to use this knowledge for predicting the future events, such as earthquakes and volcanic eruptions. In both inverse and prediction problems, often, machine learning techniques are very efficient, and at present, the most efficient machine learning technique is deep neural training. To speed up this training, the current learning algorithms use dropout techniques: they train several sub-networks on different portions of data, and then "average" the results. A natural idea is to use arithmetic mean for this …

An Ancient Bankruptcy Solution Makes Economic Sense, Anh H. Ly, Michael Zakharevich, Olga Kosheleva, Vladik Kreinovich

Departmental Technical Reports (CS)

While econometrics is a reasonable recent discipline, quantitative solutions to economic problem have been proposed since the ancient times. In particular, solutions have been proposed for the bankruptcy problem: how to divide the assets between the claimants? One of the challenges of analyzing ancient solutions to economics problems is that these solutions are often presented not as a general algorithm, but as a sequence of examples. When there are only a few such example, it is often difficult to convincingly extract a general algorithm from them. This was the case, for example, for the supposedly fairness-motivated Talmudic solution to the …

Are Permanent Or Temporary Teams More Efficient: A Possible Explanation Of The Empirical Data, Francisco Zapata, Olga Kosheleva, Vladik Kreinovich

Departmental Technical Reports (CS)

It is known that in education, stable (long-term) student teams are more effective than temporary (short-term) ones. It turned out that the same phenomenon is true for workers working on a long-term project. However, somewhat surprisingly, for small-scale projects, the opposite is true: teams without any prior collaboration experience are more successful. Moreover, it turns out that if combine in a team members with prior collaboration experience and members without such experience, the efficiency of the team gets even lower. In this paper, we provide a possible explanation for this strange empirical phenomenon.

Why West-To-East Jetlag Is More Severe: A Simple Qualitative Explanation, Olga Kosheleva, Vladik Kreinovich

Departmental Technical Reports (CS)

Empirical data shows that the jetlag when traveling west-to-east feels more severe than the jetlag when traveling east-to-west. At present, the only explanation of this empirical phenomenon is based on a complex dynamical systems model. In this paper, we provide a simple alternative explanation. This explanation also explains -- on the qualitative level -- the empirical data on relative severity of different jetlags.

Quantum Ideas In Economics Beyond Quantum Econometrics, Vladik Kreinovich, Hung T. Nguyen, Songsak Sriboonchitta

Departmental Technical Reports (CS)

It is known that computational methods developed for solving equations of quantum physics can be successfully applied to solve economic problems; there is a whole related research area called quantum econometrics. Current quantum econometrics techniques are based on a purely mathematical similarity between the corresponding equations, without any attempt to relate the underlying ideas. We believe that the fact that quantum equations can be successfully applied in economics indicates that there is a deeper relation between these areas, beyond a mathematical similarity. In this paper, we show that there is indeed a deep relation between the main ideas of …

From Mean And Median Income To The Most Adequate Way Of Taking Inequality Into Account, Vladik Kreinovich, Hung T. Nguyen, Rujira Ouncharoen

Departmental Technical Reports (CS)

How can we compare the incomes of two different countries or regions? At first glance, it is sufficient to compare the mean incomes, but this is known to be not a very adequate comparison: according to this criterion, a very poor country with a few super-rich people may appear to be in good economic shape. A more adequate description of economy is the median income. However, the median is also not always fully adequate: e.g., raising the income of very poor people clearly improves the overall economy but does not change the median. In this paper, we use known techniques …

How To Estimate Relative Spatial Resolution Of Different Maps Or Images Of The Same Area?, Christian Servin, A A. Velasco, Vladik Kreinovich

Departmental Technical Reports (CS)

In this paper, we describe how to estimate relative spatial resolution of different maps or images of the same area under uncertainty. We consider probabilistic and fuzzy approaches and we show that both approaches lead to the same estimates -- which makes us more confident that this joint result is reasonable.

Should Voting Be Mandatory? Democratic Decision Making From The Economic Viewpoint, Olga Kosheleva, Vladik Kreinovich, Boakun Li

Departmental Technical Reports (CS)

Many decisions are made by voting. At first glance, the more people participate in the voting process, the more democratic -- and hence, better -- the decision. In this spirit, to encourage everyone's participation, several countries make voting mandatory. But does mandatory voting really make decisions better for the society? In this paper, we show that from the viewpoint of decision making theory, it is better to allow undecided voters not to participate in the voting process. We also show that the voting process would be even better -- for the society as a whole -- if we allow partial …

Why Clayton And Gumbel Copulas: A Symmetry-Based Explanation, Vladik Kreinovich, Hung T. Nguyen, Songsak Sriboonchitta

Departmental Technical Reports (CS)

In econometrics, many distributions are non-Gaussian. To describe dependence between non-Gaussian variables, it is usually not sufficient to provide their correlation: it is desirable to also know the corresponding copula. There are many different families of copulas; which family shall we use? In many econometric applications, two families of copulas have been most efficient: the Clayton and the Gumbel copulas. In this paper, we provide a theoretical explanation for this empirical efficiency, by showing that these copulas naturally follow from reasonable symmetry assumptions. This symmetry justification also allows us to provide recommendations about which families of copulas we should use …