Optimal annuitization with imperfect information about insolvency risk

Even the highest‐rated life‐annuity providers have a nonzero probability of becoming insolvent during an annuitant's retirement, and many potential annuitants are unaware of the state guaranty associations (SGAs) which provide insurance against the associated financial consequences. We study the theoretical implications of insolvency risk—real and perceived—for annuitization. Then, using a disciplined calibration of annuitant misperceptions in a standard life cycle model, we show that even the modest perceived risk of default associated with highly‐rated providers can—absent awareness of the SGAs—reduce annuitization and significantly reduce welfare. We further consider the implications of information frictions which prevent retirees from discerning true insolvency risk and we find that these frictions have plausibly large additional quantitative implications for annuitization and welfare. Simulations of our model further suggest that the general lack of awareness of the SGA backstop by potential annuitants can erode a sizable fraction of the potential welfare benefits thereof.     

A Simple Estimator of Two‐Dimensional Copulas,with Applications1

Copulas are distributions with uniform marginals. Non‐parametric copula estimates may violate the uniformity condition in finite samples. We look at whether it is possible to obtain valid piecewise linear copula densities by triangulation. The copula property imposes strict constraints on design points, making an equi‐spaced grid a natural starting point. However, the mixed‐integer nature of the problem makes a pure triangulation approach impractical on fine grids. As an alternative, we study the ways of approximating copula densities with triangular functions which guarantees that the estimator is a valid copula density. The family of resulting estimators can be viewed as a non‐parametric MLE of B‐spline coefficients on possibly non‐equally spaced grids under simple linear constraints. As such, it can be easily solved using standard convex optimization tools and allows for a degree of localization. A simulation study shows an attractive performance of the estimator in small samples and compares it with some of the leading alternatives. We demonstrate empirical relevance of our approach using three applications. In the first application, we investigate how the body mass index of children depends on that of parents. In the second application, we construct a bivariate copula underlying the Gibson paradox from macroeconomics. In the third application, we show the benefit of using our approach in testing the null of independence against the alternative of an arbitrary dependence pattern.     

Are professional forecasters overconfident?

Do professional forecasters have an accurate sense of the uncertainties surrounding their own forecasts? This paper examines forecaster overconfidence by comparing ex ante, surveyed forecaster uncertainty with ex post, realised uncertainty based on the dispersion of an individual’s forecast errors. Unlike the literature that focuses on consensus forecasts, our focus is at the level of the individual forecaster. Using microdata from the three major surveys of professional forecasters (Euro Area, US and UK), we examine real GDP growth forecasts over the period 1999–2015. Our findings show that overconfidence dominates among individual forecasters, particularly for longer forecast horizons, and that individual forecasters appear to have little understanding of their own uncertainty.     

Investor sentiment and risk appetite of real estate security market

This article proposes a new model to measure the risk appetite in absence of option prices. Without options transaction, traditional measurements cannot be made. This article establishes a Risk Appetite (RA) indicator by way of change measure and simulation, with two density functions, i.e. risk-neutral density and historical density. The RA indicators use the data from the Property Composite Index (PCI) and the Shanghai Stock Exchange Composite Index (SSECI). The empirical result shows that investors involved in the real estate security market have lower RA compared to those in the general security market. Particularly, RA indicators for both indices started to fall markedly in early 2008 and even more so after September 2008. The changes in RA suggest that the overall investors’ attitudes nowadays towards China's stock market are never as pessimistic as before.     

Domesticating Gambling: Gender,Caring and the UK National Lottery

Abstract

The issue of gambling as a form of leisure practice has, to date, received very little attention from sociologists. This is despite the enormous range of consideration recently invested in gambling by policy makers, politicians, journalists, psychologists and economists. In particular, the role that gambling plays as an important part of women’s leisure patterns has been virtually ignored. In this paper, the impact of UK National Lottery play on women’s everyday leisure experiences is examined. A questionnaire was administered to a diverse group of 150 women, and 15 women from this sample volunteered to take part in in‐depth interviews. The questionnaires sought to produce a database of the frequency of lottery play, the types of games played and the amounts of money gambled. The interviews focused on individual experiences, meanings and perceptions of lottery play as a form of leisure. The quantitative and qualitative findings of the research are discussed in terms of the material and ideological constraints shaping women’s everyday experiences of leisure, and also in terms of the ways in which gender and ‘caring’ are reproduced through women’s National Lottery play. It examines the ways in which the lottery addresses a lack of time and space for women’s pursuit of leisure.     

Modelling agricultural land use allocation in regional Australia

An analysis of the drivers of agricultural land use is important for policy makers as the issues of climate change and food security become increasingly prominent in the political landscape. This paper analyses the role of prices, total land holdings and climate on land use in Australia. The analysis relates to a unique comprehensive coverage of commodity types at a regional level. An explicit treatment of missing data and the novel use of cluster analysis is employed within a partial adjustment framework for modelling land allocation. The majority of commodity types across regions exhibit significant degrees of slow partial adjustment for land allocation, the frequency of slow adjustment is greatest with crops and livestock and weakest for vegetables. In general, relative own and cross prices, total land holdings and rainfall only have a minor impact on short‐term land allocations, however numerous individual commodity/regional combinations have identified significant short‐run impacts.     

Perceptions of electricity-use communications: effects of information,format, and individual differences

Electricity bills could be an effective strategy for improving communications about consumers’ electricity use and promoting electricity savings. However, quantitative communications about electricity use may be difficult to understand, especially for consumers with low energy literacy. Here, we build on the health communication and graph comprehension literature to inform electricity bill design, with the goal of improving understanding, preferences for the presented communication, and intentions to save electricity. In a survey-based experiment, each participant saw a hypothetical electricity bill for a family with relatively high electricity use, covering information about (a) historical use, (b) comparisons to neighbors, and (c) historical use with appliance breakdown. Participants saw all information types in one of three formats including (a) tables, (b) bar graphs, and (c) icon graphs. We report on three main findings. First, consumers understood each type of electricity-use information the most when it was presented in a table, perhaps because tables facilitate simple point reading. Second, preferences and intentions to save electricity were the strongest for the historical use information, independent of format. Third, individuals with lower energy literacy understood all information less. We discuss implications for designing utility bills that are understandable, perceived as useful, and motivate consumers to save energy.     

A Guide for “JEE Content” Submissions

This is an update of a guide to the thinking of the editorial collective for the Content section of the Journal of Economic Education (JEE). The authors discuss the type of papers they are looking for, what in their view constitutes a good paper, and how their review process works. They specifically discuss their reviewing process, the content they are looking for, and their view of the structure of a good paper. Although they focus specifically on Content articles for the JEE, many of the general issues discussed may carry over to other sections of the JEE and to journals more generally.