utility covariances and context effects in conjoint mnp models experimental conjoint choice analysis is among the most frequently used methods for measuring and analyzing consumer preferences the data from such experiments have been typically analyzed with the multinomial logit mnl model however there are several problems associated with the standard mnl model because it is based on the assumption that the error terms of the underlying random utilities are independent across alternatives choice sets and subjects the multinomial probit model mnp is well known to alleviate this assumption of independence of the error terms accounting for covariances in utilities in modeling choice experiments with the mnp is important because variation of the coefficients in the choice model may occur due to context effects previous research has shown that subjects utilities for alternatives depend on the choice context that is the particular set of alternatives evaluated simonson and tversky s tradeoff contrast principle describes the effect of the choice context on attribute importance and patterns of choice they distinguish local contrast effects which are caused by the alternatives in the offered set only and background contrast effects which are due to the influence of alternatives previously considered in choice experiments these effects are hypothesized to cause correlations in the utilities of alternatives within and across choice sets respectively the purpose of this study is to develop an mnp model for conjoint choice experiments this model is important for a more detailed study of choice patterns in those experiments in developing the mnp model for conjoint choice experiments several hurdles need to be taken related to the identification of the model and to the prediction of holdout profiles to overcome those problems we propose a random coefficients rc model that assumes a multivariate normal distribution of the regression coefficients with a rank one factor structure on the covariance matrix of these regression coefficients the parameters in this covariance matrix can be used to identify which attributes and levels of attributes are potentional sources of dependencies between the alternatives and choice sets in a conjoint choice experiment we present several versions of this model moreover for each of these models we allow utilities to be either correlated or independent across choice sets the independent probit ip model is used as a benchmark given the dimensionality of the integrations involved in computing the choice probabilities the models are estimated with simulated likelihood where simulations are used to approximate the integrals involved in the choice probabilities we apply and compare the models in two conjoint choice experiments in both applications the random coefficients mnp model that allows choices in different choice sets to be correlated rc displays superior fit and predictive validity compared with all other models we hypothesize that the difference in fit occurs because the rc model accommodates correlations among choice sets that are caused by background contrast effects whereas the model that treats choice sets as independent irc accounts for local contrast effects only the irc model shows superior model fit compared with the ip model but its predictions are worse than those of the ip model we find differences in the importance of local and background contrast effects for choice sets containing different numbers of alternatives the background contrast effect may be stronger for smaller choice sets whereas the local contrast effect may be stronger for bigger choice sets we illustrate the differences in simulated market shares that are obtained from the rc irc and ip models in three hypothetical situations product modification product line extension and the introduction of a me too brand in all of those situations substantially different market shares are predicted by the three models which illustrates the extent to which erroneous predictions may be obtained from the misspecified irc and ip models

travel advice or trade embargo the impacts and implications of official travel advice abstract the purpose of this paper is to assess the extent to which the provision of official travel advice gives rise to the opportunity for tourism to be used as a political bargaining tool based on a case study of the gambia it suggests that the detail and accuracy of travel advice issued by government agencies may be influenced by broader political objectives and considers the implications of this for tourists and the tourism industry it also questions the role of governments as impartial providers of travel advice

retrieving unobserved consideration sets from household panel data the authors propose a new model to capture unobserved consideration from discrete choice data this approach allows for unobserved dependence in consideration among brands easily copes with many brands and accommodates different effects of the marketing mix on consideration and choice as well as unobserved consumer heterogeneity in both processes an important goal of this study is to establish the validity of the existing practice to infer consideration sets from observed choices in panel data the authors show with experimental data that underlying consideration sets can be reliably retrieved from choice data alone and that consideration is positively affected by display and shelf space next the model is applied to information resources inc panel data the findings suggest that promotion effects are larger when they are included in the consideration stage of the two stage model than in a single stage model the authors also find that consideration covaries across brands and that this covariation is mainly driven by unobserved consumer heterogeneity finally the authors show the implications of the model for promotion planning relative to a more standard model of choice

an ideal point probabilistic choice model for heterogeneous preferences this paper presents a new ideal point probabilistic choice model unlike the model suggested by cooper and nakanishi cooper l g m nakanishi 1983 two logit models for external analysis of preferences psychometrika48 4 607 619 which attempts to capture choices via a single ideal point the proposed model though based on aggregate data allows for heterogeneity in preferences by estimating a distribution of ideal points the model accounts for substitutability among choice alternatives and alleviates one of the major sources for the violation of the independence from irrelevant alternatives property it is demonstrated that the final form of the model is a multinomial probit with a covariance matrix that depends on the relative position of the choice alternatives an empirical application is provided and the resulting parameters are compared to the distributions of ideal points and attribute weights obtained via linmap at the individual level and via both the logit and probit versions of the model proposed by cooper and nakanishi at the aggregate level

extremeness aversion and attribute balance effects in choice consumers often make decisions based on the extremeness of choice alternatives prior research has argued that extremeness aversion is a function of the relational properties of choice alternatives and that the middle option defined such that its attribute values are between the values of the other alternatives is always viewed as the least extreme compromise option the attribute balance hypothesis advanced in this article extends prior research demonstrating that extremeness aversion is also a function of the dispersion of attribute values within each alternative in particular it is argued that an option with equal attribute ratings will be perceived as the compromise alternative even when it is not the middle option data from three studies support this prediction offering converging evidence for the attribute balance effect in different decision contexts theoretical implications of the findings are discussed in the context of the extant extremeness aversion research

stimulus context and the formation of consumer ideals when a choice set consists of a distribution of alternatives with correlated benefits and costs consumers often exhibit single peaked preferences they prefer an alternative having moderate costs and benefits theories disagree about how adding additional lower benefit lower cost or higher benefit higher cost alternatives to this choice set will affect relative preferences for the initial set of alternatives prototype theory predicts that adding alternatives should produce assimilation whereas multiattribute range frequency theory predicts that it creates contrast we reconcile these two theories by assuming that single peaked preferences reflect a composition of underlying benefit and cost valuations moreover we claim that the correlational structure of the benefit and cost dimensions in the contextual stimuli determines whether these stimuli will exert an assimilation or contrast effect we show that when benefits and costs are correlated uncorrelated adding alternatives that extend the range of offerings produces assimilation contrast for preference judgments we propose a cost benefit trade off model that incorporates elements of single peaked preference theory and range frequency theory to explain the complex fashion in which contextual stimuli affect consumer ideals

a theory of disclosure in speculative markets this paper presents a theory of disclosure in a market where investors have heterogeneous beliefs and face short sale constraints assets trade above fundamentals reflecting the value of the option to sell to more optimistic investors in the future the initial seller has an incentive to commit to an imprecise disclosure policy despite the negative effect this has on the fundamental value of the asset in order to increase the potential for disagreement and hence the magnitude of the speculative premium i show that there is a strategic complementarity between sellers in their disclosure decisions this explains why financial misreporting and episodes of speculation occur together in waves and demonstrates that the endogenous choice of imprecise disclosure amplifies the extent to which assets are overpriced this paper was accepted by amit seru finance

the limits of attraction consumer research has documented dozens of instances in which the introduction of an irrelevant third option affects preferences between the remaining two in nearly all such cases the unattractive dominated option enhances the attractiveness of the option it most resembles a phenomenon known as the attraction effect in the studies presented here however the authors contend that this phenomenon may be restricted to stylized product representations in which every product dimension is represented by a number e g a toaster oven that has a durability rating of 7 2 and ease of cleaning rating of 5 5 such effects do not typically occur when consumers experience the product e g taste a drink or when even one of the product attributes is represented perceptually e g differently priced hotel rooms whose quality is depicted with a photo the authors posit that perceptual representations of attributes do not support the sorts of comparisons that drive the attraction effect with highly stylized e

could ralph nader s entrance and exit have helped al gore the impact of decoy dynamics on consumer choice abstract people are frequently faced with making a new choice decision after a preferred option becomes unavailable prior research on the attraction effect has demonstrated how the introduction of an option into a choice set increases the share of one of the original options the authors examine the related but previously unaddressed issue of whether the unexpected exit of an option from a choice set returns the choice shares of the original options to the status quo in a series of experiments they observe that when an option turns out to be unselectable following a choice problem in which it was selectable the choice shares of the remaining options are predictably different from those of a choice problem in which the option was unselectable from the start they also observe that this attraction effect due to the disappearance of a decoy is likely a consequence of changes in the importance of decision criteria they conclude with a discussion of the theoretical and managerial implications of the research

single option aversion this article documents single option aversion an increase in consumers desire to search when faced with a single option this effect can lead to a product being chosen more often when competing alternatives are included in the choice set contrary to various rational models of search as well as to recent research on choice conflict showing that additional options can lead to higher deferral rates a series of lab studies document this effect differentiate it from other context effects and test some of its boundary conditions the results suggest that single option aversion is not driven by the information provided by the additional options that the desire to search is critical for this effect to occur and that the effects of single option aversion are not limited to the immediate choice set these results have both practical and theoretical implications for the understanding of consumer search and choice deferral

constructive consumer choice processes consumer decision making has been a focal interest in consumer research and consideration of current marketplace trends e g technological change an information explosion indicates that this topic will continue to be critically important we argue that consumer choice is inherently constructive due to limited processing capacity consumers often do not have well defined existing preferences but construct them using a variety of strategies contingent on task demands after describing constructive choice consumer decision tasks and decision strategies we provide an integrative framework for understanding constructive choice review evidence for constructive consumer choice in light of that framework and identify knowledge gaps that suggest opportunities for additional research

market boundaries and product choice illustrating attraction and substitution effects what happens to the share of choices each item receives when the choice set boundaries are extended by adding a new item that is extremely good on one dimension but poor on the others first there is a substitution effect whereby the new item takes choice share mainly from similar items in the set second there is an attraction effect resulting in a general shift of preference toward the added item experimental studies show that choice patterns conflict with current theoretical and common sense ideas about the effect of added alternatives on choice

securitization bubbles structured finance with disagreement about default risk abstract an additional reason for the structured finance boom of the 2000s may have been disagreement about default risk of collateral assets when risk neutral investors disagree about average default probabilities structuring collateral cash flow raises prices by concentrating optimists demand on risky tranches with disagreement about default correlation low correlation investors believe in diversification and pay high prices for senior tranches they deem riskless high correlation investors value junior tranches they expect to pay whenever aggregate conditions are good risk aversion and short selling through credit default swaps reduce the prices of both pass through and structured securitizations but may increase the return to tranching

did credit rating agencies make unbiased assumptions on cdos article appears in papers and proceedings of the 123rd annual meeting of the amerian economic association denver co usa 6 9 january 2011

cdos and the financial crisis credit ratings and fair premia abstract we study risk and return characteristics of cdos using the market standard models we find that fair spreads on cdo tranches are much higher than fair spreads on similarly rated corporate bonds our results imply that credit ratings are not sufficient for pricing which is surprising given their central role in structured finance markets this illustrates limitations of the rating methodologies that are solely based on real world default probabilities or expected losses and do not capture risk premia we also demonstrate that cdo tranches have large exposure to systematic risk and thus their ratings and prices are likely to decline substantially when credit conditions deteriorate

competition and strategic incentives in the market for credit ratings empirics of the financial crisis of 2007 we study the market for ratings agencies in the commercial mortgage backed securities sector leading up to and including the financial crisis of 2007 2008 using a structural model adapted from the auctions literature we characterize the incentives of ratings agencies to distort ratings in favor of issuers we find an important equilibrium distortion which decreased after the crisis we study several counterfactual experiments motivated by recent policymaking in this industry

a multiattribute model of consumer choice during product learning the processes of consumer preference formation during product learning are analyzed a hypothesis about how individuals form attribute expectations is used to derive a dynamic multinomial logit model of individual choice which endogenously recognizes product learning the model and its underlying assumptions are then tested in the context of an interactive grocery store learning game the results support most elements of the proposed model structure an assumption of temporal stationarity in attribute salience however could not be supported approaches to implementation of the model are discussed and implications for marketing management and research in individual choice modeling are addressed

adding asymmetrically dominated alternatives violations of regularity and the similarity hypothesis an asymmetrically dominated alternative is dominated by one item in the set but not by another adding such an alternative to a choice set can increase the probability of choosing the item that dominates it this result points to the inadequacy of many current choice models and suggests product line strategies that might not otherwise be intuitively plausible

toward a strategic foundation for rational expectations equilibrium a step toward a strategic foundation for rational expectations equilibrium is taken by considering a double auction with n buyers and m sellers with interdependent values and affiliated private information if there are sufficiently many buyers and sellers and their bids are restricted to a sufficiently fine discrete set of prices then generically there is an equilibrium in nondecreasing bidding functions that is arbitrarily close to the unique fully revealing rational expectations equilibrium of the limit market with unrestricted bids and a continuum of agents in particular the large double auction equilibrium is almost efficient and almost fully aggregates the agents information

the influence of serotonin deficiency on choice deferral and the compromise effect abstractpsychological and physiological states such as mood hunger stress and sleep deprivation are known to affect decision making processes and therefore crucially influence consumer behavior a possible biological mechanism underlying the observed variability of consumer behavior is the context sensitive variation in the levels of neuromodulators in the brain in a series of four experimental studies the authors pharmaceutically reduce the levels of the neurotransmitter serotonin in the brain to diminish the availability of subjects cognitive resources in doing so they study how serotonin brain levels influence 1 subjects tendency to avoid buying and 2 consumers preference for product options positioned as a compromise in a given choice set rather than for more extreme alternatives i e the compromise effect using realistic product choice scenarios in a binding decision framework they find that a reduction of brain serotonin levels leads to choice deferral and decreases the compromise

new products the antidote to private label growth abstract as private labels pls continue to grow in power and market share product innovation has become one of the strongest weapons in the national brand nb manufacturer s arsenal in this article the author assesses when and to what extent new products change nbs market position to address this question more than 300 nb and pl introductions are analyzed using a multibreak model that quantifies the impact of product introductions on own share rival nb and pl share and category sales drawing on empirical generalizations the author finds that products introduced by leading nbs standard pls and premium pls are more likely to increase category sales than products introduced by follower nbs or economy pls new products introduced by leader and follower nbs more often boost own share thus new products help prevent the decline of nb shares with respect to competitive impact new products affect rival shares with the exception of those launched by economy pls still nbs tend to hurt rival nbs

the role of explanations and need for uniqueness in consumer decision making unconventional choices based on reasons this research investigates the interaction between a very common task explaining decisions and an individual difference need for uniqueness nfu on buyer decision making we propose that explaining or providing reasons for decisions shifts the focus from the choice of options to the choice of reasons furthermore buyers who explain their decisions and have high nfu tend to select unconventional reasons and are consequently more likely to make unconventional choices these predictions were supported in a series of studies involving choices between conventional and less conventional options such as whether to switch to a brand on sale whether to select a compromise option and whether to accept a gamble with a possible loss the findings also indicate that the effects of providing reasons are not due to attempts to act rationally or to concerns about being evaluated three boundary conditions on the generalization that high nfu consumers who provide reasons tend to make unconventional choices we

a context dependent model of the gambling effect this paper presents a context dependent theory of decision under risk the relevant contextual factor is the presence of a riskless lottery in a preference comparison the theory only deviates from expected utility if the set of options contains both riskless and risky lotteries the main motivation for the theory is to explain the gambling effect contrary to previous theories of the gambling effect the present theory is consistent with stochastic dominance it can however violate transitivity the theory allows for a decomposition of the interaction between risk aversion and gambling aversion and thereby extends the classical arrow pratt measure of risk aversion

truth telling by third party auditors and the response of polluting firms experimental evidence from india in many regulated markets private third party auditors are chosen and paid by the firms that they audit potentially creating a conflict of interest this article reports on a two year field experiment in the indian state of gujarat that sought to curb such a conflict by altering the market structure for environmental audits of industrial plants to incentivize accurate reporting there are three main results first the status quo system was largely corrupted with auditors systematically reporting plant emissions just below the standard although true emissions were typically higher second the treatment caused auditors to report more truthfully and very significantly lowered the fraction of plants that were falsely reported as compliant with pollution standards third treatment plants in turn reduced their pollution emissions the results suggest reformed incentives for third party auditors can improve their reporting and make regulation more effective jel codes q56 m42 d22 copyright 2013 oxford university press

the effect of forced choice on choice abstract whereas most academic and industry studies of consumer preferences and decision making involve forced choice i e participants are told to choose one of the presented product or service alternatives buyers usually also have the option not to select any alternative an implicit assumption in the experimental practice of forcing choice is that the no choice option draws proportionately from the various available alternatives such that the qualitative conclusions are unaffected however the authors propose that the no choice option competes most directly with alternatives that buyers tend to select when they are uncertain about their preferences building on this general proposition the authors show that the introduction of the no choice option strengthens the attraction effect weakens the compromise effect and decreases the relative share of an option that is average on all dimensions they also examine the mechanisms underlying the impact of having the option not to choose and the condi

terrorism and tourism as logical companions abstract the symbiotic relationship between terrorism and tourism needs to be understood and acted on not just in terms of security and marketing but in terms of such factors as planning site development employment policies political risk analysis and emergency management this article looks at the relationship between tourism and terrorism from several perspectives the political and economic impact of terrorism on tourism is assessed including the sensitivity of the tourism industry to general political strife and the vulnerability of travellers and tourist facilities to terroristic activity the nature of terroristic violence and the objectives of terrorist groups are evaluated to determine why and how attacks on tourists and facilities may fit the organizational and political objectives of terrorist groups finally the article suggests how the industry and policy makers must proceed to reduce the vulnerability for tourists and the travel sector

context dependent preferences the standard theory of choice based on value maximization associates with each option a real value such that given an offered set the decision maker chooses the option with the highest value despite its simplicity and intuitive appeal there is a growing body of data that is inconsistent with this theory in particular the relative attractiveness of x compared to y often depends on the presence or absence of a third option z and the market share of an option can actually be increased by enlarging the offered set we review recent empirical findings that are inconsistent with value maximization and present a context dependent model that expresses the value of each option as an additive combination of two components a contingent weighting process that captures the effect of the background context and a binary comparison process that describes the effect of the local context the model accounts for observed violations of the standard theory and provides a framework for analyzing context dependent p

multi product pricing for electric power abstract this paper describes methods for determining the prices for a discrete set of interrelated products offered by a single supplier each product has a fixed marginal rate per unit the demand for each product depends upon the price levels of all the products and the supplier s cost function depends upon the demands for all the products for specific demand function forms methods are described for determining the prices that maximize a weighted sum of net revenue and consumer surplus

the asymmetric impact of context on advantaged versus disadvantaged options abstractdespite substantial prior research regarding the effect of context on choices uncertainty remains regarding when particular context effects will be observed in this article the authors advance a new perspective on context dependent choices according to which context effects are a function of the relative advantage of one option over another and of the different strategies that decision makers evoke when making a choice they propose that context effects resulting from the addition of a third option to a two option set are more frequently observed when the added option is relatively similar adjacent to the disadvantaged alternative i e the lower share option in the set the authors conduct a series of studies to analyze the occurrence of context effects and find support for predictions related to asymmetric dominance and extremeness aversion

does cultural background of tourists influence the destination choice an empirical study with special reference to political instability abstract political instability is a complex and multidimensional term with various conceptualisations and interpretations this paper investigates the cross cultural differences of the perceptions of travel agents concerning the impact of political instability on tourism to capture the impact a composite index of political instability indicators was developed and was subsequently distributed to 2000 travel agents in six major tourism generating countries an integrated empirical framework has been developed which allows the analysis of the survey data using repeated measures anova the results of the study demonstrates the existence of significant differences on the way that travel agents perceive the impact of the various types of political instability on the tourism industry the results might be of some interest to tourism policy makers and marketing agents

a monetary measure of the strength and robustness of the attraction effect the attraction effect has been studied in conditions of indifference among options and measured at the aggregate level we introduce a new within subjects design based on induced preferences and psychometrics our method yields two individual level measures the traditional frequency measure and a new monetary indicator the monetary indicator measures the robustness of the effect to decreases in the relative utility of the target with respect to the competitor we find choice frequencies consistent with the literature our monetary measure shows that subjects still prefer the target up to the point where it is 8 more expensive than the competitor

imperfect information transmission from banks to investors macroeconomic implications abstract our goal is to elucidate the interaction of banks screening effort and strategic information production in loan backed asset markets using a general equilibrium framework asset quality is unobserved by investors but banks may purchase error prone ratings the premium paid on highly rated assets emerges as the main determinant of banks screening effort the fact that rating strategies reflect banks private information about asset quality helps keep this premium high conventional regulatory policies interfere with this decision margin thereby reducing signaling value of high ratings and exacerbating the credit misallocation problem we propose a tax subsidy scheme that induces efficiency

can institutional investors bias real estate portfolio appraisals evidence from the market downturn this paper investigates the extent to which institutional investors may have influenced independent real estate appraisals during the financial crisis a conceptual model of the determinants of client influence on real estate appraisals is proposed it is suggested that the extent of clients ability and willingness to bias appraisal outputs is contingent upon market and regulatory environments ethical norms and legal and institutional frameworks the salience of the appraisal s to the client financial incentives for the appraiser to respond to client pressure organisational culture the level of moral reasoning of both individual clients and appraisers client knowledge and the degree of appraisal uncertainty the potential of client influence to bias ostensibly independent real estate appraisals is examined using the opportunity afforded by the market downturn commencing in 2007 in the uk during the market turbulence at the end of 2007 the motivations of different types of owners to bias appraisals diverged clearly and temporarily provided a unique opportunity to assess potential appraisal bias we use appraisal based performance data for individual real estate assets to test whether there were significant ownership effects on performance during this period the results support the hypothesis that real estate appraisals in this period reflected the differing needs of clients

choice based on reasons the case of attraction and compromise effects building on previous research this article proposes that choice behavior under preference uncertainty may be easier to explain by assuming that consumers select the alternative supported by the best reasons this approach provides an explanation for the so called attraction effect and leads to the prediction of a compromise effect consistent with the hypotheses the results indicate that 1 brands tend to gain share when they become compromise alternatives in a choice set 2 attraction and compromise effects tend to be stronger among subjects who expect to justify their decisions to others and 3 selections of dominating and compromise brands are associated with more elaborate and difficult decisions

ratings shopping and asset complexity a theory of ratings inflation abstract many identify inflated credit ratings as one contributor to the recent financial market turmoil we develop an equilibrium model of the market for ratings and use it to examine possible origins of and cures for ratings inflation in the model asset issuers can shop for ratings observe multiple ratings and disclose only the most favorable before auctioning their assets when assets are simple agencies ratings are similar and the incentive to ratings shop is low when assets are sufficiently complex ratings differ enough that an incentive to shop emerges thus an increase in the complexity of recently issued securities could create a systematic bias in disclosed ratings despite the fact that each ratings agency produces an unbiased estimate of the asset s true quality increasing competition among agencies would only worsen this problem switching to an investor initiated ratings system alleviates the bias but could collapse the market for information

effects of competitive context and of additional information on price sensitivity previous marketing research on the effects of price has tended to ignore the role of such moderating variables as competitive context and the availability of additional information the authors presented subjects with forced choice decisions in several product categories using a multinomial logit formulation to measure price sensitivity they find relatively lower price sensitivity 1 when a brand is placed at the upper price quality boundary of a choice set rather than in the middle 2 when only brand names are provided as opposed to only quality ratings and 3 when quality information is added to available brand name information they discuss the theoretical and managerial implications of these findings

decoy effects in choice experiments and contingent valuation asymmetric dominance while a dominated choice involves a situation in which one option clearly dominates another on all relevant dimensions an asymmetrically dominated choice typically arises where at least two options do not dominate each other and one but not both of those options does dominate a third option we demonstrate that the introduction of such an asymmetrically dominated option can have a significant impact upon choices between non dominated options within the same choice set for non market goods furthermore we show that this effect can then translate into significant impacts upon subsequent valuations for those non dominated options

information acquisition in financial markets tions agents have exponential utility and random variables are normally distributed these assumptions are often necessary to obtain closed form solutions we present an example with alternative assumptions and demonstrate that some of the conclusions from previous literature fail to hold in particular we show that in our example as more agents acquire information prices do not necessarily become more informative and agents may have greater incentive to acquire informatioln learning can therefore be a strategic complement allowing for the possibility of multiple equilibria

cross listed bonds information asymmetry and conservatism in credit ratings we propose information asymmetry as an additional explanation for rating conservatism because information asymmetry is likely higher for cross listed bonds than for u s bonds we expect and find that cross listed bonds are rated more conservatively than u s domestic bonds at issuance further cross listed bonds receive less frequent upgrades and take longer to be upgraded after issuance because lower ratings might also reflect higher default risk based on agencies private information we conduct additional tests to discriminate between the rating conservatism and private information explanations the results are consistent with ratings conservatism and inconsistent with the private information explanation

credit rating industry a helicopter tour of stylized facts and recent theories the recent subprime crisis and the ongoing euro zone crisis have generated an enormous interest in the credit rating industry not only among economists but also among average citizens as a consequence we have seen an explosion of the economic literature on the industry the objective of this survey is to introduce readers to the key stylized facts of the credit rating industry and to the recent theoretical economic literature on this industry

discretionary ratings and the pricing of subprime mortgage backed securities using a dataset of home equity loan securities issued up to june 2007 and rated by moody s and or sp however these alternative thresholds do not appear to play a role as relevant as that of the ig sg boundary rating bias is also found to have an asymmetric impact on spreads the relevance of actual over expected ratings is greater for tranches receiving evaluations that are higher rather than lower than expected taken together these pieces of empirical evidence point toward ratings based regulation as an important explanation for the observed mispricing of structured finance products

conflicts of interest information provision and competition in the financial services industry abstract in some markets sellers have better information than buyers over which products best serve a buyer s needs depending on the market structure this may lead to conflicts of interest in the provision of information by sellers this paper studies this issue in the market for financial services the analysis presents a new model of competition between banks where price competition influences the ensuing incentives for truthful information revelation we also compare conflicts of interest in two different firm structures specialized banking and one stop banking

predictive testing of consumer choice models not subject to independence of irrelevant alternatives the probabilistic modeling of the relationship between objective or perceived characteristics of multiattribute alternatives and consumer choice is receiving increased attention in marketing and ot

bank ratings what determines their quality this paper examines the quality of credit ratings assigned to banks by the three largest rating agencies we interpret credit ratings as relative assessments of creditworthiness and define a new ordinal metric of rating error based on banks expected default frequencies our results suggest that on average large banks receive more positive bank ratings particularly from the agency to which the bank provides substantial securitization business these competitive distortions are economically significant and contribute to perpetuate the existence of too big to fail banks we also show that overall differential risk weights recommended by the basel accords for investment grade banks bear no significant relationship to empirical default probabilities harald hau sam langfield and david marques ibanez

wealth information acquisition and portfolio choice i solve with an approximation a grossman stiglitz economy under general preferences thus allowing for wealth effects because information generates increasing returns decreasing absolute risk aversion in conjunction with the availability of costly information is sufficient to explain why wealthier households invest a larger fraction of their wealth in risky assets one no longer needs to resort to decreasing relative risk aversion an empirically questionable assumption furthermore i show how to distinguish empirically between these two explanations finally i find that the availability of costly information exacerbates wealth inequalities copyright 2004 oxford university press

behavioral equilibrium in economies with adverse selection i propose a new solution concept behavioral equilibrium to study environments with players who are naive in the sense that they fail to account for the informational content of other players actions a behavioral equilibrium requires that i players have no incentives to deviate given their beliefs about the consequences of deviating ii these beliefs are consistent with the information obtained from the actual equilibrium play of all players and iii when processing this information naive players fail to account for the correlation between other players actions and their own payouncertainty i apply the framework to certain adverse selection settings and show that contrary to the received literature the adverse selection problem is exacerbated when naive players fail to account for selection more generally the main distinguishing feature of the framework is that in equilibrium beliefs about both fundamentals and strategies are jointly restricted consequently whether a bias may arise or not is determined endogenously in equilibrium jel c72 d82 a large literature presents evidence that psychological and cognitive biases aect people s be havior this evidence raises some questions what are the eects of these biases and can they persist at all in economic settings where people strategically interact with each other and have the opportunity to learn from their experience 1 in this paper i introduce a game theoretic equilibrium framework to study these questions in the context of a particular bias people s failure to take into account the informational content of other people s actions i apply the framework to a class of games that arises naturally in adverse selection settings and then show that the adverse selection

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices

tourism s vulnerability and resilience to terrorism personal security is a major concern for tourists most tourists will seek safe and secure destinations and avoid those that have been plagued by terrorism this research quantifies the relationship between terrorism and tourism in 95 different countries and territories using international tourism demand models after controlling for income we find there is no long run effect of terrorism on international tourism demand and the short run effect is quite limited from a global perspective using panel data models only nine countries out of the 95 show a long run impact of terrorism on tourism and 25 countries out of the 95 show a short run impact using time series models implying that international tourism is resilient to terrorism the influence of terrorism is diverse in destinations with different political instability income levels and tourism intensities