Policy capturing in small‐group decision making: Using linear programming to assign factor weights for the NCAA Selection Committee's ranking decisions in the 2016 through 2018 men's basketball tournaments

We present a general approach for applying policy capturing to small‐group decision making and demonstrate the approach with the NCAA Selection Committee's rankings of the 68 teams in the three most recent Division I Men's Basketball Tournaments. We develop a linear programming model that minimizes the extent to which the evaluation of a lower‐ranked team exceeds that of a team ranked immediately above it. The result is a set of linear weights that approximates a group decision when the decision itself is demonstrably internally inconsistent in that a group ranks some teams higher than others despite a lower implied evaluation.     

On the manager as principal clerk

Until recently, economic theory and economists treated the management process with benign neglect. Insofar as business enterprises — the firms of economic theory – require managers to oversee their daily operations, these managers are implicitly viewed as fungible ‘principal clerks’. This paper makes this view explicit and considers whether it is valid for a particular class of manager, that of a major league baseball team.     

A MULTINOMIAL APPROXIMATION FOR AMERICAN OPTION PRICES IN LÉVY PROCESS MODELS

This paper gives a tree-based method for pricing American options in models where the stock price follows a general exponential Lévy process. A multinomial model for approximating the stock price process, which can be viewed as generalizing the binomial model of Cox, Ross, and Rubinstein (1979) for geometric Brownian motion, is developed. Under mild conditions, it is proved that the stock price process and the prices of American-type options on the stock, calculated from the multinomial model, converge to the corresponding prices under the continuous time Lévy process model. Explicit illustrations are given for the variance gamma model and the normal inverse Gaussian process when the option is an American put, but the procedure is applicable to a much wider class of derivatives including some path-dependent options. Our approach overcomes some practical difficulties that have previously been encountered when the Lévy process has infinite activity.     

On the adequacy of single‐stock futures margining requirements

Unlike the traditional futures contract risk‐based approach to margining, new security futures contracts are margined under a strategy‐based margining system similar to that which applies in the equity options markets. As a result, these new margin requirements are potentially much less sensitive to changes in market conditions. This article performs a simulation to evaluate whether these alternative margining methodologies can be expected to produce comparable outcomes. The analysis suggests that a 1‐day settlement period will likely lead to collection of customer margins that are virtually always greater than that which its traditional risk‐based counterpart would require. A 4‐day settlement period would lead to margin requirements that both significantly under‐ and overmargin relative to a comparable risk‐based system. This study argues that exchanges may approach the preferred probability of customer exhaustion by managing margin settlement intervals. Thus, the new strategy‐based rules, in and of themselves, will not necessarily inhibit new security futures trading activity. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:989–1002, 2003     

Membership size in the educable cooperative facing uncertain demand

This article explicitly incorporates layoff and hiring costs into a discretetime dynamic model with stationary demand uncertainty, in which managers in a cooperative learn something about the demand process over time, and anticipate learning something about that process. It is shown how the opportunity to learn affects initial membership size and how the knowledge gained induces changes in membership, as well as how risk preferences impact on membership size at any point in time.     

Why Democracies Cooperate More and Fight Less: The Relationship Between International Trade and Cooperation

This paper provides an economics-based interpretation of the standard finding in the literature that democracies rarely fight each other. A general theory of conflict between two countries is presented and empirical analysis applies this theory to the question of why democracies rarely fight each other. The results show that the fundamental factor in causing bilateral cooperation is trade. Countries seek to protect wealth gained through international trade, therefore trading partners are less combative than nontrading nations. Democratic dyads trade more than nondemocratic dyads, and thus exhibit less conflict and more cooperation.