Econometrics Commons^™

A Perspective On Electronic Alternatives To Traditional Currencies, Gabriele Camera

ESI Working Papers

The institution of money is rapidly evolving thanks to developments in computer-based cryptography. Technological advances have made possible the creation of cost-effective electronic alternatives to banknotes and coins, which are the traditional physical currencies. This document aims to describe — based on scientific literature — the use and characteristics of money, some of the problems associated with issuing a new currency or a new payment instrument, and the possible comparative advantages of a central bank in leading the way relative to private issuers.

Asymmetric Social Norms, Gabriele Camera, Alessandro Gioffré

ESI Working Papers

Studies of cooperation in infinitely repeated matching games focus on homogeneous economies, where full cooperation is efficient and any defection is collectively sanctioned. Here we study heterogeneous economies where occasional defections are part of efficient play, and show how to support those outcomes through contagious punishments.

Using Experiments To Compare The Predictive Power Of Models Of Multilateral Negotiations, Cary Deck, Charles J. Thomas

ESI Working Papers

We conduct unstructured negotiations in a laboratory experiment designed to empirically assess the predictive power of three approaches to modeling the multilateral negotiations observed in diverse strategic settings. For concreteness we consider two sellers negotiating with a buyer who wants to make only one trade, with the modeling approaches distinguished by whether the buyer negotiates with the sellers sequentially, simultaneously, or in a “take-it-or-leave-it” fashion. Our experiment features two scenarios within which the three approaches have observationally distinct predictions: a differentiated scenario with one high-surplus and one low-surplus seller, and a homogeneous scenario with identical high-surplus sellers. In both scenarios …

Economic Analysis With Systematically Biased Agents, Mark Schneider

ESI Working Papers

A tenet of behavioral economics is that biases are systematic and should have visible effects in economic applications. Expected utility maximization has been widely applied in economic analysis, but progress has been slower incorporating 'systematically biased' agents into applications involving risk. This contrasts with the widespread application of present-biased preferences in intertemporal settings. To address this gap, we advocate a model of quasi-rank dependent probability weighting as a natural analog to quasi-hyperbolic discounting for decisions under risk. The model satisfies stochastic dominance and transitivity and transforms individual rather than cumulative probabilities. We illustrate the model’s tractability in several economic applications.

The Pros And Cons Of Workplace Tournaments, Roman M. Sheremeta

ESI Working Papers

Tournaments are commonly used in the workplace to determine promotion, assign bonuses, and motivate personal development. Tournament-based contracts can be very effective in eliciting high effort, often outperforming other compensation contracts, but they can also have negative consequences for both managers and workers. The benefits and disadvantages of workplace tournaments have been identified in theoretical, empirical, and experimental research over the past several decades. Based on these findings, I provide suggestions and guidelines for when it might be beneficial to use tournaments in the workplace.

On The Robustness Of Higher Order Risk Preferences, Cary Deck, Harris Schlesinger

ESI Working Papers

Economists have begun to recognize the role that higher order risk preferences play in a variety of settings. As such, several experiments have documented the degree of prudence, temperance, and to a lesser extent, edginess and bentness that laboratory subjects exhibit. More recently, researchers have argued that higher order risk preferences generally conform to mixed risk averse and mixed risk loving patterns that arise from a preference for disaggregating or aggregating harms, respectively. This paper examines the robustness of this pattern in three ways. First, it attempts to directly replicate previous results with compound lotteries over monetary outcomes. Second, it …

Dual Process Utility Theory: A Model Of Decisions Under Risk And Over Time, Mark Schneider

ESI Working Papers

The Discounted Expected Utility model has been a major workhorse for analyzing individual behavior for over half a century. However, it cannot account for evidence that risk interacts with time preference, that time interacts with risk preference, that many people are averse to timing risk and do not discount the future exponentially, that discounting depends on the magnitude of outcomes, that risk preferences are not time preferences, and that risk and time preferences are correlated with cognitive ability. Here we address these issues in a decision model based on the interaction of an affective and a reflective valuation process. The …

Multi-Battle Contests: An Experimental Study, Shakun D. Mago, Roman M. Sheremeta

ESI Working Papers

We examine behavior of subjects in simultaneous and sequential multi-battle contests, where each individual battle is modeled as an all-pay auction with complete information. In simultaneous best-of-three contests, subjects are predicted to make positive bids in all three battles, but we find that subjects often make positive bids in only two battles. In sequential contests, theory predicts sizable bids in the first battle and no bids in the subsequent battles. Contrary to this prediction, subjects significantly underbid in the first battle and overbid in subsequent battles. Consequently, instead of always ending in the second battle, contests often proceeds to the …

Impulsive Behavior In Competition: Testing Theories Of Overbidding In Rent-Seeking Contests, Roman M. Sheremeta

ESI Working Papers

Researchers have proposed various theories to explain overbidding in rent-seeking contents, including mistakes, systematic biases, the utility of winning, and relative payoff maximization. Through an eight-part experiment, we test and find significant support for the existing theories. Also, we discover some new explanations based on cognitive ability and impulsive behavior. Out of all explanations examined, we find that impulsivity is the most important factor explaining overbidding in contests.

Endogenous Market Formation And Monetary Trade: An Experiment, Gabriele Camera, Dror Goldberg, Avi Weiss

ESI Working Papers

The theory of money assumes decentralized bilateral exchange and excludes centralized multilateral exchange. However, endogenizing the exchange process is critical for understanding the conditions that support the use of money. We develop a “travelling game” to study the spontaneous emergence of decentralized and centralized exchange, theoretically and experimentally. Players located on separate “islands” can either trade locally, or pay a cost to trade elsewhere, so decentralized and centralized markets can both emerge in equilibrium. The latter maximize trade meetings and are socially efficient; the former minimize trade costs through the use of money. In the laboratory, centralized exchange more frequently …

Do Economic Inequalities Affect Long-Run Cooperation?, Gabriele Camera, Cary Deck, David Porter

ESI Working Papers

Does inequality affect a group’s cohesion and ability to prosper? Participants in laboratory economies played an indefinite sequence of helping games in random, anonymous pairs. A coin flip determined donor and recipient roles in each pair. This random shock ensured equality of opportunity but not of results, because earnings depended on realized shocks. We manipulated the ability to condition choices on this uncontrollable inequality source. In all treatments, uncertain ending supports multiple Pareto-ranked equilibria, including full cooperation. Theoretically, inequalities do not alter the incentives’ structure. Empirically, inequality disclosures altered conduct, weakened norms of mutual support and reduced efficiency.

Focality And Asymmetry In Multi-Battle Contests, Subhashish M. Chowdhury, Dan Kovenock, David Rojo Arjona, Nathaniel Wilcox

ESI Working Papers

This article examines behavior in two-person constant-sum Colonel Blotto games in which each player maximizes the expected total value of the battlefields won. A lottery contest success function is employed in each battlefield. Recent experimental research on such games provides only partial support for Nash equilibrium behavior. We hypothesize that the salience of battlefields affects strategic behavior (the salient target hypothesis). We present a controlled test of this hypothesis – against Nash predictions – when the sources of salience come from certain asymmetries in either battlefield values or labels (as in Schelling (1960)). In both cases, subjects over-allocate the resource …

The Influence Of The Electric Supply Industry On Economic Growth In Less Developed Countries, Edward Richard Bee

Dissertations

This study measures the impact that electrical outages have on manufacturing production in 135 less developed countries using stochastic frontier analysis and data from World Bank’s Investment Climate surveys. Outages of electricity, for firms with and without backup power sources, are the most frequently cited constraint on manufacturing growth in these surveys.

Outages are shown to reduce output below the production frontier by almost five percent in Africa and by a lower percentage in South Asia, Southeast Asia and the Middle East and North Africa. Production response to outages is quadratic in form. Outages also increase labor cost, reduce exports …

Effect Of Non-Monetary Incentives On Women's Competitive Inclination: Experimental Evidence From Ancona, Italy, Kalkidan Shebi

Master's Theses

This study investigates how monetary incentives versus non-monetary incentives affect women’s decision to enter a competitive environment. This study was conducted in Ancona Italy, in a controlled laboratory experiment with a total of 60 participants; of which 29 were male and 31 were female. Participants were given mathematical addition problems to solve under alternative incentives. How they received these incentives differed based on their preference to enter or withdraw from the competition. The study also included components that assessed risk preferences and willingness to pay for the non-monetary incentive in the experiment. Results show no significant difference in performance scores …

Geospatial Modeling Of Vietnamese Fdi, Cuong Nguyen Tien

Theses and Dissertations

This thesis sets a goal to analyze and project geographically disaggregated measures of FDI using aggregate data. We regress the country level FDI with aggregate, fine geospatial data on GDP, urban extent, and risk. By disaggregating the model, we will predict the FDI flow in every 1000 square kilometer area.

Dynamic Behavior And Player Types In Majoritarian Multi-Battle Contests, Alan Gelder, Dan Kovenock

ESI Working Papers

In a dynamic contest where it is costly to compete, a player who is behind must decide whether to surrender or to keep fighting in the face of bleak odds. We experimentally examine the game theoretic prediction of last stand behavior in a multi-battle contest with a winning prize and losing penalty, as well as the contrasting prediction of surrendering in the corresponding contest with no penalty. We find varied evidence in support of these hypotheses in the aggregated data, but more conclusive evidence when scrutinizing individual player behavior. Players’ realized strategies tend to conform to one of several “types”. …

Mean-Dispersion Preferences With A Specific Dispersion Function, Mark Schneider, Manuel Nunez

ESI Working Papers

A popular approach to modeling ambiguity aversion is to decompose preferences into the subjective expected utility of an act and an ambiguity index, or an adjustment factor, or a dispersion function. However, in these approaches the dispersion function (or ambiguity index, or adjustment factor) has very little structure imposed on it, leaving the selection of a specific dispersion function in applications to be rather arbitrary. In this note, working in the Anscombe- Aumann (1963) framework, we provide a simpler axiomatic characterization of mean-dispersion preferences which uniquely identifies the dispersion function from the infinite class of possible alternatives. Given the representation, …

Designing Contests Between Heterogeneous Contestants: An Experimental Study Of Tie-Breaks And Bid-Caps In All-Pay Auctions, Aniol Llorente-Saguer, Roman M. Sheremeta, Nora Szech

ESI Working Papers

A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the “discouragement effect.” Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer’s revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the discouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning.

Salience, Framing, And Decisions Under Risk, Uncertainty, And Time, Jonathan W. Leland, Mark Schneider

ESI Working Papers

We propose a comparative model of decision making under risk, uncertainty, and time, in which large differences in payoffs and probabilities or dates of receipt are perceived as salient and overweighted in the evaluation process. The predictions of the model depend on what differences are compared across alternatives which, in turn, depends on how the choice is framed. We formalize a class of matrix-based frames which applies to decisions under risk, uncertainty, and time, and we specify two important types of frames within this class: minimal frames which provide the simplest representation of choice alternatives, and transparent frames which make …

Model Selection For Explosive Models, Yubo Tao, Jun Yu

Research Collection School Of Economics

This paper examines the limit properties of information criteria for distinguishing between the unit root model and the various kinds of explosive models. The information criteria include AIC, BIC, HQIC. The explosive models include the local-to-unit-root model, the mildly explosive model and the regular explosive model. Initial conditions with different order of magnitude are considered. Both the OLS estimator and the indirect inference estimator are studied. It is found that BIC and HQIC, but not AIC, consistently select the unit root model when data come from the unit root model. When data come from the local-to-unit-root model, both BIC and …

The Effects Of Alcohol Use On Economic Decision Making, Klajdi Bregu, Cary Deck, Lindsay Ham, Salar Jahedi

ESI Working Papers

It is notoriously hard to study the effect of alcohol on decision making, given the selection that takes place in who drinks alcohol and when they choose to do so. In a controlled laboratory experiment, we study the causal effect of alcohol on economic decision making. We examine the impact of alcohol on the following types of tasks: math and logic, uncertainty, overconfidence, strategic games, food choices, anchoring, and altruism. Our results indicate that alcohol consumption, as measured by the blood alcohol concentration (BAC), increases cooperation in strategic settings and altruism in Dictator games. We do not find any effects …

Optimal Tilts, Malcom Baker, Terence C. Burnham, Ryan Taliaferro

ESI Working Papers

We examine the optimal weighting of four characteristic tilts in US equity markets over the period from 1968 through 2014. We define a “tilt” as a positive-Sharpe-ratio, characteristicbased portfolio strategy that requires relatively low annual turnover and a “trade” as a characteristic-based portfolio strategy that requires relatively high annual turnover and liquidity demands. Size is a tilt, because of its very low turnover; high frequency reversal is a trade. This dichotomy is necessary to make practical use of Fama-French style factor regressions. Unlike low-turnover tilts, a full history of transaction costs and an estimate of capacity is critical to determine …

Prediction In A Generalized Spatial Panel Data Model With Serial Correlation, Badi H. Baltagi, Long Liu

Center for Policy Research

This paper considers the generalized spatial panel data model with serial correlation proposed by Lee and Yu (2012) which encompasses a lot of the spatial panel data models considered in the literature, and derives the best linear unbiased predictor (BLUP) for that model. This in turn provides valuable BLUP for several spatial panel models as special cases.

Arousal And Economic Decision Making, Salar Jahedi, Cary Deck, Dan Ariely

ESI Working Papers

Previous experiments have found that subjecting participants to cognitive load leads to poorer decision making, consistent with dual-system models of behavior. Rather than taxing the cognitive system, this paper reports the results of an experiment that takes a complementary approach: arousing the emotional system. The results indicate that exposure to arousing visual stimuli as compared to neutral images has a negligible impact on performance in arithmetic tasks, impatience, risk taking in the domain of losses, and snack choice although we find that arousal modestly increases in risk-taking in the gains domain and increases susceptibility to anchoring effects. We find the …

Coffee In China: Market Trend And Consumer Demand, Jesse W. Mattingly

Theses and Dissertations--Agricultural Economics

Although it remains a tea consuming nation, both production and consumption of coffee in China has been increasing at double-digit rates and is not expected to slow down (International Coffee Organization (ICO), 2015). With investments and upward trends in production and rapid increases in consumption of coffee in China it is important for producers and retailers of the bean¹ in China to understand the new Chinese coffee consumer. Using survey data from Wuhan, China we help understand the Chinese coffee consumer by explaining their consumption using standard OLS regression. Results show that whether or not consumers make/brew their own …

The Impact Of State-Provided Paid Family Leave On Wages: Examining The Role Of Gender, Aimee Samantha Abrams Widdicombe

Scripps Senior Theses

The U.S. is the only OECD country that does not offer any form of federal paid parental leave. Only three states—California, New Jersey and Rhode Island—have state-provided paid leave policies; implemented in 2004, 2009 and 2014, respectively. Through descriptive statistics and difference-in-difference-in-difference regression analyses of the wages of women and men of childbearing age (19-45 years) in those three states, we assess whether the paid leave programs have effected wages, and whether these effects vary depending on gender. Our results show that wages of women of childbearing age saw negligible net effects post-policy in policy states, although statistically insignificant. On …

A Sustainability-Based Project Selection Algorithm: Socio-Technical-Economic Project Selection (Steps) Algorithm, Bharathi Bhattu

Dissertations, Master's Theses and Master's Reports

Multi-dimensional aspects play a vital role in the task of project-decision making. Environmental effects are to be considered in addition to other technical and non-technical aspects in order to avoid undue environmental damage. This current work introduces a new decision-making algorithm (Socio-Technical-Economic Project Selection or STEPS) that is demonstrated with the use of RCA (recycled concrete aggregate) as riprap for slope stabilization and erosion control which leaches chemical arsenic when in contact with water. Arsenic has long been recognized for its lethal properties. The main intention of introducing this new algorithm is to use sustainability concepts of social, technical, and …

Decrypting Bitcoin Prices And Adoption Rates Using Google Search, Varun Puri

CMC Senior Theses

In this paper, I analyze Bitcoin price formation and adoption rates at a global and national level. In determining Bitcoin prices, I consider contemporaneous and lagged values of traditional determinants of currencies, such as inflation and industrial production, and digital currency specific factors, primarily public interest. Using monthly time-series data across five years (2011 – 2016), I find that global public interest in Bitcoin, measured by Google searches for the keyword ‘Bitcoin,’ has a positive and significant impact on Bitcoin prices. I extend the analysis to a country level by employing a proxy for adoption rates, represented by the number …

Causes And Consequences Of The Protestant Reformation, Sascha O. Becker, Steven Pfaff, Jared Rubin

ESI Working Papers

The Protestant Reformation is one of the defining events of the last millennium. Nearly 500 years after the Reformation, its causes and consequences have seen a renewed interest in the social sciences. Research in economics, sociology, and political science increasingly uses detailed individual-level, city-level, and regional-level data to identify drivers of the adoption of the Reformation, its diffusion pattern, and its socioeconomic consequences. This survey takes stock of the research so far, tries to point out what we know and what we do not know, and which are the most promising areas for future research.

Payment Scheme Self-Selection In The Credence Goods Market: An Experimental Study, Hernan Bejarano, Ellen P. Green, Stephen Rassenti

ESI Working Papers

Given heterogeneity in expert behavior across payment schemes in credence goods markets, it becomes important to understand the consequences of payment scheme selection. To study the effect on customer well being of expert self-selection, we recruited subjects to participate in a real-effort credence good laboratory market. Experts were either randomly assigned or faced with the choice of three payment schemes: fee-for-service, salary, and capitation. We found that experts who selected fee-for-service payment resulted in customers with significantly worse outcomes in comparison with experts who had been randomly assigned to fee-for-service. In contrast, experts who selected salary payment did not change …