Measuring Risk Attitudes in a Natural Experiment: Data from the Television Game Show Lingo

We use data from a television game show involving elementary lotteries as a natural experiment to measure risk attitudes. Unique features of our data set are the substantial monetary stakes and the large sample size. CRRA and CARA utility specifications perform approximately equally well. We find robust evidence of substantial risk aversion. Extensions of the basic model, which allow for a separate utility flow purely from playing the game or for decisions based on decision weights instead of actual probabilities, raise the estimated degree of risk aversion.     

What about the leader? What should the Hungarian Prime Minister do after he lied?

This article shows how text analysis is used to investigate the role leadership characteristics (in the sense of how to behave) play in the media before and after a political leader has taken care of an event that has shocked a substantial part of the population in his country. Here this is a lie by the Hungarian Prime Minister that became public in September 2006. It turns out that after the event took place the leader has to demonstrate vision and has to keep or gain trust from the people.     

The rise and fall of self-service in Amsterdam trams: user–technology relations in a case of service innovation

The stabilisation of innovative technology depends on reconciling technological opportunities and user behaviour. This can be achieved by adjusting the technology to the users, by configuring the user, or by a combination thereof. This paper evaluates different strategies in a case of service innovation: the substitution of conductors with self-service machines in the Amsterdam tramways around 1970 and the various forms of fare-dodging that came along. To counteract fare-dodging, the transport company unsuccessfully relied on a strategy to configure users. Alternative strategies, notably configuring users through technological adjustment, are suggested to increase the chance of stabilisation. These observations and suggestions are related to the actual characteristics of services: given that transport services are immediately and collectively used, their misuse, if not corrected by fellow passengers, soon tends to threaten the aspect of stability. Emphasising service characteristics thus contributes to a better understanding of strategies to reconcile services and users.     

Contingent deficit sanctions and moral hazard with a stability pact

We show how a stability pact based on deficit sanctions eliminates the exacerbation of debt accumulation that may arise from monetary unification. Moreover, with sanctions contingent on the observed state of the economy, the pact avoids aggravating the situation of a country in recession. Moral hazard problems arise if the state also depends on unobservable, politically costly fiscal effort. This could explain why sanctions under the actual Stability and Growth Pact are only automatically waived in extreme recessions and why the procedure linking observed deficits and sanctions involves a long and detailed assessment of a country’s situation.     

Analysis of changes in Dutch emission trade balance(s) between 1996 and 2007

In this paper we construct bilateral emission trade balances (ETB) for The Netherlands with 17 regions and compare results for 1996 and 2007 for three different greenhouse gasses. We establish a cross-sectional analysis of bilateral ETBs into a volume of trade, composition and technology effect. In order to analyze the driving forces of changes over time we perform a structural decomposition analysis of embodied import and export emissions. The main findings are that the embodied import emissions have increased by 37% whereas export emissions increased by only 3%, which is primarily driven by CO₂. The 2007 bilateral balances are positive with OECD countries but negative with economies such as Russia, Africa and China. The analyses demonstrate that the worsening of the ETB is to a large extent caused by the changing composition of trade: the Dutch economy increasingly exports clean products and imports dirty products.     

Democratic transformation in Hungary 1990–1997 a cross examination

This paper presents a cross examination of findings from a content analytic study into the ideological implications of the democratic transformation in Hungary during the first years after the transition. For example, based on rhetoric within a sample of Hungarian editorials the study provides evidence of a shift between 1990 and 1997 in depictions of political activities from ones of achievement to ones of necessity. Support for these and other findings is sought and found in International Social Survey Program data from 1990, 1996, and 2006.     

The Economics of Fiscal Rules and Debt Sustainability

Intereconomics - Because they exert cross-border spillover effects, fiscal policies of individual EU member states are a common concern for the entire EU.     

Execution in an aggregator

An aggregator is a technology that consolidates liquidity—in the form of bid and ask prices and amounts—from multiple sources into a single unified order book to facilitate ‘best-price’ execution. It is widely used by traders in financial markets, particularly those in the globally fragmented spot currency market. In this paper, I study the properties of execution in an aggregator where multiple liquidity providers (LPs) compete for a trader’s uninformed flow. There are two main contributions. Firstly, I formulate a model for the liquidity dynamics and contract formation process, and use this to characterize key trading metrics such as the observed inside spread in the aggregator, the reject rate due to the so-called ‘last-look’ trade acceptance process, the effective spread that the trader pays, as well as the market share and gross revenues of the LPs. An important observation here is that aggregation induces adverse selection where the LP that receives the trader’s deal request will suffer from the ‘Winner’s curse’, and this effect grows stronger when the trader increases the number of participants in the aggregator. To defend against this, the model allows LPs to adjust the nominal spread they charge or alter the trade acceptance criteria. This interplay is a key determinant of transaction costs. Secondly, I analyse the properties of different execution styles. I show that when the trader splits her order across multiple LPs, a single provider that has quick market access and for whom it is relatively expensive to internalize risk can effectively force all other providers to join her in externalizing the trader’s flow thereby maximizing the market impact and aggregate hedging costs. It is therefore not only the number, but also the type of LP and execution style adopted by the trader that determines transaction costs.     

Zero-intelligence realized variance estimation

Given a time series of intra-day tick-by-tick price data, how can realized variance be estimated? The obvious estimator—the sum of squared returns between trades—is biased by microstructure effects such as bid–ask bounce and so in the past, practitioners were advised to drop most of the data and sample at most every five minutes or so. Recently, however, numerous alternative estimators have been developed that make more efficient use of the available data and improve substantially over those based on sparsely sampled returns. Yet, from a practical viewpoint, the choice of which particular estimator to use is not a trivial one because the study of their relative merits has primarily focused on the speed of convergence to their asymptotic distributions, which in itself is not necessarily a reliable guide to finite sample performance (especially when the assumptions on the price or noise process are violated). In this paper we compare a comprehensive set of nineteen realized variance estimators using simulated data from an artificial “zero-intelligence” market that has been shown to mimic some key properties of actual markets. In evaluating the competing estimators, we concentrate on efficiency but also pay attention to implementation, practicality, and robustness. One of our key findings is that for scenarios frequently encountered in practice, the best variance estimator is not always the one suggested by theory. In fact, an ad hoc implementation of a subsampling estimator, realized kernel, or maximum likelihood realized variance, delivers the best overall result. We make firm practical recommendations on choosing and implementing a realized variance estimator, as well as data sampling.