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Full-Text Articles in Social and Behavioral Sciences

Moral Hazard In Home Equity Conversion, Robert J. Shiller, Allan N. Weiss May 1998

Moral Hazard In Home Equity Conversion, Robert J. Shiller, Allan N. Weiss

Cowles Foundation Discussion Papers

Home equity conversion as presently constituted or proposed usually does not deal well with the potential problem of moral hazard. Once homeowners know that the risk of poor market performance of their homes is borne by investors, they have an incentive to neglect to take steps to maintain the homes’ values. They may thus create serious future losses for the investors. A calibrated model for assessing this moral hazard risk is presented that is suitable for a number of home equity conversion forms: 1) reverse mortgages, 2) home equity insurance, 3) shared appreciation mortgages, 4) housing partnerships, 5) shared equity …


Some Simple Games For Teaching And Research. Part 1: Cooperative Games, Martin Shubik Mar 1998

Some Simple Games For Teaching And Research. Part 1: Cooperative Games, Martin Shubik

Cowles Foundation Discussion Papers

Over many years some simple cooperative games have been considered in lectures on game theory. The games were selected in order to provide insight into various normative theories of solution to n-person games. It is suggested that the results indicate that when solutions have outcomes in common, predictability is higher than when they are apart. The core is attractive but less so when it is heavily nonsymmetric.


The Equivalence Of The Dekel-Fudenberg Iterative Procedure And Weakly Perfect Rationalizability, Jean-Jacques Herings, Vincent J. Vannetelbosch Mar 1998

The Equivalence Of The Dekel-Fudenberg Iterative Procedure And Weakly Perfect Rationalizability, Jean-Jacques Herings, Vincent J. Vannetelbosch

Cowles Foundation Discussion Papers

Two approaches have been proposed in the literature to refine the rationalizability solution concept: either assuming that players make small errors when playing their strategies, or assuming that their is a small amount of payoff uncertainty. We show that both approaches lead to the same refinement if errors are made according to the concept of weakly perfect rationalizability, and there is payoff uncertainty as in Dekel and Fudenberg [ Journal of Economic Theory (1990), 52: 243–267]. For both cases, the strategies that survive are obtained by starting with one round of elimination of weakly dominated strategies followed by many rounds …


Estimation Of Nonparametric Functions In Simultaneous Equations Models, With An Application To Consumer Demand, Donald J. Brown, Rosa L. Matzkin Mar 1998

Estimation Of Nonparametric Functions In Simultaneous Equations Models, With An Application To Consumer Demand, Donald J. Brown, Rosa L. Matzkin

Cowles Foundation Discussion Papers

We present a method for consistently estimating nonparametric functions and distributions in simultaneous equations models. This method is used to identify and estimate a random utility model of consumer demand. Our identification conditions for this particular model extend the results of Houthakker (1950), Uzawa (1971) and Mas-Colell (1977), where a deterministic utility function is uniquely recovered from its deterministic demand function.


Indexed Units Of Account: Theory And Assessment Of Historical Experience, Robert J. Shiller Feb 1998

Indexed Units Of Account: Theory And Assessment Of Historical Experience, Robert J. Shiller

Cowles Foundation Discussion Papers

An indexed unit of account is a money analogue, used to express prices; the unit’s purchasing power is defined by an index. Indexed units of account are not true money in that they are not used as a medium of exchange. The first successful indexed unit of account, the Unidad de Fomento (UF) has been used in Chile since 1967, and has been copied in Colombia, Ecuador, Mexico, and Uruguay. The reasons for creating such units are discussed from the standpoint of monetary theory. The experience with such units in Chile is discussed. It is argued that important practical problems …


Human Behavior And The Efficiency Of The Financial System, Robert J. Shiller Feb 1998

Human Behavior And The Efficiency Of The Financial System, Robert J. Shiller

Cowles Foundation Discussion Papers

Recent literature in empirical finance is surveyed in its relation to underlying behavioral principles, principles which come primarily from psychology, sociology and anthropology. The behavioral principles discussed are: prospect theory, regret and cognitive dissonance, anchoring, mental compartments, overconfidence, over- and underreaction, representativeness heuristic, the disjunction effect, gambling behavior and speculation, perceived irrelevance of history, magical thinking, quasi-magical thinking, attention anomalies, the availability heuristic, culture and social contagion, and global culture.


Uniqueness, Stability, And Comparative Statics In Rationalizable Walrasian Markets, Donald J. Brown, Chris Shannon Jan 1998

Uniqueness, Stability, And Comparative Statics In Rationalizable Walrasian Markets, Donald J. Brown, Chris Shannon

Cowles Foundation Discussion Papers

This paper studies the extent to which qualitative features of Walrasian equilibria are refutable given a finite data set. In particular, we consider the hypothesis that the observed data are Walrasian equilibria in which each price vector is locally stable under tâtonnement. Our main result shows that a finite set of observations of prices, individual incomes and aggregate consumption vectors is rationalizable in an economy with smooth characteristics if and only if it is rationalizable in an economy in which each observed price vector is locally unique and stable under tâtonnement. Moreover, the equilibrium correspondence is locally monotone in a …