Biased and overconfident,unbiased but going for it: How framing and anchoring affect the decision to start a new venture

Cognitive heuristics, biases, and overconfidence have been suggested as an explanation for entrepreneurial entry. Nevertheless, empirical research on the subject has produced mixed findings and has under-explored the cognitive mechanisms leading to overconfidence in entrepreneurial settings. In two within-subject experiments, we focus on three cognitive heuristics—reference point framing, outcome salience framing, and anchoring in conjunctive events—and examine their effects on perceived risk, confidence, required and estimated probabilities of success, and the decision to start a new venture. Our findings show that reference point framing and outcome salience framing affect the decision to enter directly and indirectly via risk perception, but do not affect confidence. In addition, the effect of anchoring is contingent on the congruence between its semantic and its numeric influences. Overconfidence only obtains when the numeric and semantic influences of anchoring are aligned and aimed at enhancing the salience of potential positive outcomes, i.e., through high probabilities of success.     

ASSESSING MONETARY POLICY IN SOUTH AFRICA IN A DATA‐RICH ENVIRONMENT

This paper examines the efficacy of monetary policy in the South African economy using a data‐rich framework. We use the Factor‐Augmented Vector Autoregressive (FAVAR) methodology, which contains 110 monthly variables for the period 1985:02‐2007:11. The results, based on impulse‐response functions, provide no evidence of the price puzzle observed in traditional Structural Vector Autoregressive analysis and confirm that monetary policy in South Africa is effective in stabilising prices. Unlike the traditional vector autoregressive approach, the FAVAR methodology allows further analysis of a large number of variables. Variables from real and financial variables react negatively to a contractionary monetary policy shock. Finally, we find evidence of the importance of a confidence channel transmission following a monetary policy shock.     

How far an Austrian law and economics should be Posnerian?

The purpose of this note is to stress that Posner??s conception of law and of the role of judges in a legal system might be problematic for an Austrian approach to law and economics, despite the praxeological dimension of his analysis.     

Nowcasting causality in mixed frequency vector autoregressive models

This paper introduces nowcasting causality as the mixed-frequency version of instantaneous causality. We analyze the relationship between nowcasting and Granger causality in a mixed-frequency VAR and illustrate its impact on the significance of high-frequency variables in mixed-frequency conditional models.     

Switching VARMA Term Structure Models

The purpose of this article is to propose a global discrete-timemodeling of the term structure of interest rates which is ableto capture simultaneously the following important features:(i) a historical dynamics of the factor driving term structureshapes involving several lagged values, and switching regimes;(ii) a specification of the stochastic discount factor (SDF)with time-varying and regime-dependent risk-premia; (iii) explicitor quasi explicit formulas for zero-coupon bond (ZCB) and interestrate derivative prices. We develop the switching autoregressivenormal (SARN) and the switching vector autoregressive normal(SVARN) Factor-Based Term Structure Models of order p. The factoris considered as a latent variable or an observable variable:in the second case the factor is a vector of several yields.Regime shifts are described by a Markov chain with (historical)nonhomogeneous transition probabilities. An empirical analysisof bivariate VAR(p) and SVARN(p) Factor-Based Term StructureModels, using monthly observations of the U.S. term structureof interest rates, and a goodness-of-fit and expectation hypothesispuzzle comparison with competing models in the literature, showsthe determinant role played by the observable nature of thefactor, lags, and switching regimes in the term structure modeling.     

Equality of opportunity and luck: Definitions and testable conditions,with an application to income in France

We offer a model of equality of opportunity that encompasses different conceptions expressed in the public and philosophical debates. In addition to circumstances whose effect on outcome should be compensated and effort which represents a legitimate source of inequality, we introduce a third factor, luck, that captures the random factors whose impact on outcome should be even-handed for equality of opportunity to be satisfied. Then, we analyze how the various definitions of equality of opportunity can be empirically identified, given data limitations and provide testable conditions. Definitions and conditions resort to standard stochastic dominance tools. Lastly, we develop an empirical analysis of equality of opportunity for income acquisition in France over the period 1979–2000 which reveals that the degree of inequality of opportunity tends to decrease and that the degree of risk of income distributions, conditional on social origin, appears very similar across all groups of social origins.     

A simple axiomatization and constructive representation proof for choquet expected utility

>P>Summary. We provide a set of simple and intuitive set of axioms that allow for a direct and constructive proof of the Choquet Expected Utility representation for decision making under uncertainty. Received: October 29, 2002; revised version: November 13, 2002 RID="*" ID="*" We thank Matthew Ryan for very useful comments and suggestions on related work and for encouraging us to write this note. Correspondence to: S. Grant     

Indeterminacy and cycles in two-sector discrete-time model

Summary. We consider a discrete-time two-sector Cobb-Douglas economy with positive sector specific external effects. We show that indeterminacy of steady states and cycles can easily arise with constant or decreasing social returns to scale, and very small market imperfections. This is in sharp contrast with most of the contributions in the literature in which increasing social returns are required to generate indeterminacy. Received: July 31, 2000; revised version: June 5, 2001     

Monotone continuous multiple priors

Summary. In a multiple priors model á la Gilboa and Schmeidler (1989), we provide necessary and sufficient behavioral conditions ensuring the countable additivity and non-atomicity of all priors.Received: 25 November 2002, Revised: 24 June 2004, JEL Classification Numbers: D81.We thank Roko Aliprantis, Maristella Botticini, Erio Castagnoli, Larry Epstein, Paolo Ghirardato, Itzhak Gilboa, Luigi Montrucchio, David Schmeidler, Marciano Siniscalchi, an Associate Editor, and an anonymous referee for helpful discussions. Fabio Maccheroni and Massimo Marinacci gratefully acknowledge the financial support of MIUR and NOMOS Sistema (Milano).