Subjective Uncertainty over Behavior Strategies: A Correction

In order to model the subjective uncertainty of a player over the behavior strategies of an opponent, one must consider the player's beliefs about the opponent's play at information sets that the player thinks have probability zero. This corregendum uses “trembles” to provide a definition of the convex hull of a set of behavior strategies. This corrects a definition we gave in [E. Dekel, D. Fudenberg, and D. K. Levine, 1999, J. Econ. Theory89, 165-185], which led to two of the solution concepts we defined there not having the properties we intended. Journal of Economic Literature Classification Numbers: C72, D82, C610.     

Would adopting the Australian dollar provide superior monetary policy in New Zealand?

Counterfactual experiments with the Reserve Bank of New Zealand's core model provide some insight into the implications for New Zealand's economic performance over the 1990s, had it credibly fixed its currency to the Australian dollar. If New Zealand had faced the relatively more stimulatory Australian monetary conditions prevailing over the 1990s, then output growth may have been temporarily boosted. However, demand pressures would have probably been greater and inflation higher. In particular, results suggest that over the latter part of the 1990s annual inflation would have been approximately 1% point higher on average. Stochastic simulation experiments provide a vehicle to analyse what the implications of currency union might be more generally. Results suggest that if New Zealand were to lose its ability to set monetary policy independent of that set in Australia, then the variability of inflation and output would increase over the business cycle.     

Does telic/paratelic user mode matter on the effectiveness of interactive internet advertising? A reversal theory perspective

Drawing on reversal theory (Apter, 2007), the current research proposes that internet users' metamotivational state (telic vs. paratelic) determines advertising interactivity's effectiveness. An online field experiment involving 141 Facebook and Twitter users tests this proposition. Research findings support telic state consumers form more positive attitudes toward a low-level interactive ad, whereas paratelic state consumers form more positive attitudes toward a high-level interactive ad. Further, this research shows that an arousal seeking tendency mediates the metamotivational state's impact on ad attitude.     

ON THE ROBUSTNESS OF RANGE‐BASED VOLATILITY ESTIMATORS

We empirically examine Parkinson's range‐based volatility estimate in the federal funds market, which is unique because institutional regulations create a predictable pattern in interday volatility. We find that range‐based volatility estimates and standard deviations produce the expected volatility pattern. We also find that at trading pressure points where microstructure noise should be greatest, range‐based estimates are less than the standard deviations. Thus, we support the argument that range‐based volatility estimates remove the upward bias created by microstructure noise. We find that the Parkinson method is the most efficient range‐based volatility measure among a set of alternates in this market.     

The appropriateness of default investment options in defined contribution plans: Australian evidence

For participants in defined contribution (DC) plans who refrain from exercising investment choice, plan contributions are invested following the default investment option of their respective plans. Since default investment options of different plans vary widely in terms of their benchmark asset allocation, the most important determinant of investment performance, participants enrolled in these options face significantly different wealth outcomes at retirement. This paper simulates the terminal wealth outcomes under different static asset allocation strategies to evaluate their relative appeal as default investment choice in DC plans. We find that strategies with low or moderate allocation to stocks are consistently outperformed in terms of upside potential of exceeding the participant's wealth accumulation target at retirement as well as downside risk of falling below that target outcome by aggressive strategies whose allocation to stocks approach 100%. The risk of extremely adverse wealth outcomes for plan participants also does not appear to be very sensitive to asset allocation. Our evidence suggests the appropriateness of strategies heavily tilted towards stocks to be nominated as default investment options in DC plans unless plan providers emphasize predictability of wealth outcomes over adequacy of retirement wealth.     

What is a strategic acquisition? Decision modeling in support of foreclosed housing redevelopment

This paper describes and develops a model for calculating location-based strategic values of foreclosed properties considered for acquisition and redevelopment by community development corporations (CDCs). A property’s strategic value refers to its proximity to site-specific neighborhood amenities and disamenities (e.g. schools, public transit, distressed properties), given the relative importance of that proximity to CDC organizational and community objectives. We operationalize the concept of strategic value, and apply this concept to a salient public sector decision problem. Using data and value assessments from a CDC engaged in foreclosed housing redevelopment, we compute measures of strategic value for a set of acquisition candidates. We show that strategic values can differ in systematic ways depending on the types of amenities and disamenities identified as relevant for CDC acquisition decisions, the relative importance assigned to those amenities and disamenities, and the utility maximization objectives of the CDC. We conclude by proposing a multi-criteria decision model for foreclosed housing acquisition and redevelopment which incorporates a theory of residential housing impacts for which strategic value measures are a special case.     

Pharmacy discount card programs: catching up with the health markets

Pharmacy costs continue to rise, as does the number of senior citizens. One of the ways of containing costs may be the pharmacy discount drug card program, for both seniors and the general population.     

Temporary open market operation on MBS repos: any foreshadowing of the financial crisis of 2008?

The financial crisis of 2008 was significantly influenced by housing, mortgage markets and mortgage-backed securities (MBS). The Federal Reserve (Fed) conducts temporary open market operations on a daily basis and frequently uses repos on MBS. With this daily interaction with MBS, we examine whether any signal about the impending financial crisis could have been seen in the Fed’s temporary open market operations. We identify four anomalous events in MBS temporary open market operations and examine those events for signals of the financial crisis. We find nothing in the four events that would have provided signals of the financial crisis. Instead, the common feature of the four events is an unusually large supply of MBS made available to the Fed for those day’s temporary open market operations.