"Buy on the Rumor:" Anticipatory Affect and Investor Behavior

This article demonstrates a relationship between investor psychology and security pricing around anticipated events. Taking a multidisciplinary approach, we pull together research in the finance, psychology, and neuroscience literature. Event studies in the finance literature demonstrate anomalous security (stock, commodity, bond, or option) price movements around the dates of anticipated events. From the neuroscience literature we demonstrate correlations between reward anticipation and the arousal of affect (feelings, emotions, moods, attitudes, and preferences). From the cognitive psychology literature we extract evidence for the central role of affect in motivating investing behavior. We briefly outline an investment strategy for exploiting the event-related security price pattern described by the trading strategy "buy on the rumor and sell on the news."     

Cheating,emotions, and rationality: an experiment on tax evasion

The economics-of-crime approach usually ignores the emotional cost and benefit of cheating. In this paper, we investigate the relationships between emotions, deception, and rational decision-making by means of an experiment on tax evasion. Emotions are measured by skin conductance responses and self-reports. We show that the intensity of anticipated and anticipatory emotions before reporting income positively correlates with both the decision to cheat and the proportion of evaded income. The experienced emotional arousal after an audit increases with the monetary sanctions and the arousal is even stronger when the evader’s picture is publicly displayed. We also find that the risk of a public exposure of deception deters evasion whereas the amount of fines encourages evasion. These results suggest that an audit policy that strengthens the emotional dimension of cheating favors compliance.     

Cellular telephones in the Israeli market: the demand,the choice of provider and potential revenues

This study presents the methodology, the estimates and a scenario for forecasting the demand for cellular telephones and their use in Israel. The analysis was based on the integration of three sub-models. The estimate of the consumer's decision on whether to purchase a cellular telephone and what type was obtained by using a discrete choice model of the multinomial logit type. The total number of cellular telephone purchases to be made in Israel during the years 1998–2008 was estimated using a logistic growth model employing aggregate data over time. The anticipated demand for airtime was based on findings of a survey carried out on a national sample, and on actual usage data on the various consumers during the years prior to the survey. The research shows the substantial economic potential of Israel's cellular telephone market.     

On the flexibility of the Rotterdam model

The Rotterdam model is a discrete approximation to a continuous time model and the approximation errors are known to be small. Unlike other approximations, with fixed parameters at the point of approximation, the Rotterdam model's coefficients differ at each observation, but are treated as constants during estimation. This procedure introduces relatively large approximation errors which are a potential source of bias. In this paper the performance of the Rotterdam model in reproducing the characteristics of four integrable demand systems is assessed. As anticipated, the model's performance is directly related to the variability of the underlying coefficients and the bias in the parameter estimates is minimal if the coefficients are relatively constant. The model can also discriminate well against an invalid alternative hypothesis. However, in the absence of a computationally feasible varying parameter methodology the conclusion has to be that tests of parameter stability are essential when using the Rotterdam model.     

从认知科学到经济学:情绪介入经济决策的内在机理研究

认知科学中情绪研究的兴起和发展改变了人们对情绪介入经济决策的传统认识。文章在梳理认知科学关于情绪介入决策的基础上,从权变的视角分析了情绪介入决策的权变因素,并阐述了认知科学对情绪介入经济决策研究的渗透和影响。文章认为认知科学对经济学的影响表现为:在研究视角上,可以从认知科学的信息加工视角理解情绪介入经济决策的内在机制;在研究层次上,经济决策的研究从行为层进入到认知心理层和脑神经层;在研究方法上,认知科学的行为实验和脑功能成像技术等方法被运用到经济决策的研究中;在研究模型上,经济学家发展了一些基于具体情绪的决策模型。文章在认知科学的基础上构建了经济学情绪—理性互动决策的概念模型。     

Effects of Anticipated Fiscal Policy Shock on Macroeconomic Dynamics in Japan

This study investigates the effects of fiscal policy on macroeconomic dynamics in Japan with a particular focus on the effects of anticipated fiscal policy shock and the recent policies of Abenomics. We identify anticipated fiscal policy shock by combining excess stock returns for the construction industry and the vector autoregressive model with robust sign restrictions derived from a theoretical model. The primary result is that GDP and consumption respond positively to anticipated fiscal policy shock. In addition, the result of the historical decomposition that focuses on the period of Abenomics reveals that anticipated fiscal policy shock positively contributes to consumption dynamics.     

Using stated preference discrete choice modelling to inform health care decision-making: A pilot study of breast screening participation

This study was an important start to explore the feasibility of applying stated preference discrete choice modelling (SPDCM) for use in developing breast screening participation enhancement strategies. It needs to be followed by further research to establish model validity and authoritative results. In the meantime a random effects binary probit choice model was estimated using a main effects with selected 2-way interaction design and a convenience sample of Australian breast cancer screening participants. A response rate of 48% was obtained. Clear preferences for different service configurations were revealed and used to demonstrate how potential strategies to enhance future participation rates of women placed on routine recall could be identified. As anticipated accuracy of screening was the most important attribute of the service to influence the probability of uptake but others were screening time, travel time, information about screening benefits and the desire for privacy lending support to the view that benefit assessment goes beyond health factors. In summary, the SPDCM approach can be regarded as a judicious approach for helping decision-makers improve screening participation.     

Informal Caregiving and the Retirement Decision

The probability of providing informal care grows with one's own age. While labor market effects due to caregiving are moderate, they could be concentrated in the years close to retirement. Therefore, I investigate whether care in the previous year leads to retirement in the year after by using German Socio‐Economic Panel data from 2001 to 2009 and discrete‐time hazard models. The effect of care on the retirement decision is indeed much higher than its effect on the labor or working hours of middle‐aged individuals. Women are affected to a larger extent but the retirement decision of men also reacts to their caregiving obligations.     

Some implications of the natural rate hypotheses

Changes in the anticipated and actual levels of inflation change the incentive to hold monetary and nonmonetary assets. We present a model with a production sector and markets for labor, capital, bonds, and money. The response of the model to changes in the anticipated inflation rate is derived. Restrictions implied by the various natural rate hypotheses are discussed. An asymmetry in the response of the economy to anticipated inflation and deflation makes the natural rate conditions more plausible for inflationary as opposed to deflationary equilibria. A new version of the liquidity trap is suggested by the analysis.     

Modelling Heterogeneity in Response Behaviour Towards a Sequence of Discrete Choice Questions: A Probabilistic Decision Process Model

There is a growing body of evidence in the non-market valuation literature suggesting that responses to a sequence of discrete choice questions tend to violate the assumptions typically made by analysts regarding independence of responses and stability of preferences. Decision processes (or heuristics) such as value learning and strategic misrepresentation have been offered as explanations for these results. While a few studies have tested these heuristics as competing hypotheses, none has investigated the possibility that each explains the response behaviour of a subgroup of the population. In this paper, we make a contribution towards addressing this research gap by presenting a probabilistic decision process model designed to estimate the proportion of respondents employing defined heuristics. We demonstrate the model on binary and multinomial choice data sources and find three distinct types of response behaviour. The results suggest that accounting for heterogeneity in response behaviour may be a better way forward than attempting to identify a single heuristic to explain the behaviour of all respondents.     

The effect of market conduct on international steam coal trade

This paper is concerned with the determinants of international steam coal trade. Most quantitative work in explaining such trade has been stymied by the apparent failure of the competitive model to account for observed and anticipated trade flows. In general, authors have sought institutional explanations for this failure. The hypothesis explored by this paper is that the exercising of market power by certain agents in the market can lead to trade patterns consistent with those observed and anticipated. This hypothesis is explored through a simple model of imperfect market equilibrium. In addition to perfect competition, we examine Cournot-Nash monopoly (South Africa), duopoly (South Africa, Australia) and duopoly/monopsony (South Africa, Australia, Japan) with a competitive fringe of producers (US, Canada, Poland, China, Colombia). Using the equilibrium model of coal trade, we examine these market structures and evaluate the extent to which they can explain existing and anticipated trade patterns.     

Monetary non-neutrality with anticipatory price setting and rational expectations

It is proved that the neutrality proposition for anticipated monetary policy fails, when markets do not continuously clear and prices partly adjust in accordance with rationally anticipated disequilibrium. The model exhibits non-uniqueness, but all solutions are non-neutral.     

Growth cycles and inflation in a model of the class struggle

The problems of price and wage inflation and unemployment are discussed here in a context of a model of class struggle developed by R. M. Goodwin. The basic Goodwin model which is an analog of the Volterra-Lotka preypredator model is extended to include actual and anticipated price inflation and excess capacity. Cyclical behavior of labor's share in national income and the employment ratio is studied around a Harrodian steady state. It is found that the presence of money illusion with respect to the actual rate of inflation in the wage bargaining equation is a stabilizing influence. With respect to anticipated inflation, local stability of equilibrium is no longer assured. The implications of this for Phillips curve analysis are also derived.     

FISCAL POLICIES IN AN INTERTEMPORAL DISEQUILIBRIUM MACROECONOMIC MODEL

A two-period macroeconomic model where consumption and investment decisions are given microeconomic foundations is presented. The model is used to analyse the effects of both current and anticipated fiscal expansion; careful attention is paid to the implications of the government's intertemporal budget constraint. It is shown that anticipated fiscal expansion may, in certain circumstances, be expansionary. Also, current fiscal expansion, if financed by bonds which are retired through future money creation, may be contractionary.     

A model of the linked adoption of complementary technologies

This paper presents a dynamic feedback model of the technology diffusion process in which each firm's technology adoption decisions maximize the net present value of its anticipated cash flow, taking into account the direct cost savings, the number of linked firms expected to adopt complementary technologies, and anticipated changes in adoption costs. The adoption of complementary technologies need not be simultaneous, but linked technologies can induce a rapid industrial regime shift without explicit coordination or planning.     

Scarcity and appropriative competition

This paper formalizes the commonsensical hypothesis that resource scarcity causes a large allocation of time and effort to appropriative competition. Our main innovation is to model explicitly the positive intertemporal effect of consumption on the probability of survival. The critical assumption is that this effect becomes stronger as resources become scarcer. We also show that anticipated future resource abundance increases the incremental value of survival and, consequently, amplifies the current allocation of time and effort to appropriative competition. Interestingly, if resources are currently scarce, then larger anticipated future abundance can cause a big enough increase in the time and effort allocated to appropriative competition to result in a decrease in the sum of current and expected future utility, a “paradox of anticipated abundance”.     

The nonneutrality of money and employment rates: Tobin and taxation effects

This paper demonstrates sufficient conditions for a system of income taxation to create a negative relationship between the steady-state rates of fully anticipated inflation and employment. The model examined is an extension of the one developed by Fischer (1979) to demonstrate the nonneutrality of money in an economy where inflation is accurately anticipated in the long-run equilibrium.     

The real balance effect and the non-neutrality of money in a simple model of a small open economy

The paper examines the implications of the real balance effect for the neutrality of money in a small open economy model which contains an explicit treatment of aggregate supply. Two specific results emerge. First, an unanticipated monetary expansion is neutral in both the long and short runs, whilst an anticipated increase in the money supply has real short-run effects. Secondly, the non-neutrality associated with an anticipated monetary expansion manifests itself in a fall in output and employment during the transition to the new steady-state.     

Anticipated Fiscal Policy Changes and Goods Market Adjustments

Abstract. Government policies are frequently known to be temporary and thus their termination is perfectly anticipated. These foreseen policy changes must be consistent with equilibrium in both the goods market and asset markets. Potential problems arise because prices often play dual roles, both as final goods prices, and as asset prices, as components of rates of return. We show how the economy accommodates an anticipated policy change depends upon its production flexibility and its structure. With flexible investment, an anticipated reduction in government expenditure is fully accommodated by capital accumulation. When investment involves adjustment costs, the marginal utility of wealth and the price of capital both jump so as to maintain equality among rates of return. Goods market clearance is maintained by a combination of increases in consumption and investment. Extensions of the model to include inventories and to a small open economy are also considered and contrasted.     

The somatic marker hypothesis: A neural theory of economic decision

Modern economic theory ignores the influence of emotions on decision-making. Emerging neuroscience evidence suggests that sound and rational decision making, in fact, depends on prior accurate emotional processing. The somatic marker hypothesis provides a systems-level neuroanatomical and cognitive framework for decision-making and its influence by emotion. The key idea of this hypothesis is that decision-making is a process that is influenced by marker signals that arise in bioregulatory processes, including those that express themselves in emotions and feelings. This influence can occur at multiple levels of operation, some of which occur consciously, and some of which occur non-consciously. Here we review studies that confirm various predictions from the hypothesis, and propose a neural model for economic decision, in which emotions are a major factor in the interaction between environmental conditions and human decision processes, with these emotional systems providing valuable implicit or explicit knowledge for making fast and advantageous decisions.