monetary policy and liquid government debt abstract we examine the conduct of monetary policy in a world where the supply of outside money is controlled by the fiscal authority a scenario increasingly relevant for many developed economies today central bank control over the long run inflation rate depends on whether fiscal policy is ricardian or non ricardian the optimal monetary policy follows a generalized friedman rule that eliminates the liquidity premium on scarce treasury debt we derive conditions for determinacy under both fiscal regimes and show that they do not necessarily correspond to the taylor principle in addition non ricardian regimes may suffer from multiplicity of steady states when the government runs persistent deficits

combining valuable inventions exploring the impact of prior invention value on the performance of subsequent inventions innovation research widely acknowledges that most inventions are recombinations of existing ideas and technologies following this stream of research this study analyses how the values of prior inventions used to develop a subsequent invention influence the value of the new invention building on evolutionary theory and research on technological search and technological paradigms this article proposes a positive relationship between prior inventions value and subsequent invention value the analysis of a large scale patent data set of pharmaceutical and semiconductor firms largely confirms this notion however it also shows that the effect weakens when prior inventions are of higher value valuable prior inventions are also positively related to the likelihood that subsequent inventions are breakthroughs however while this effect also decreases when prior inventions hold higher values the decreasing effect occurs only at particularly high levels of prior invention value in contrast combining valuable inventions limits the likelihood of generating poor invention outcomes value in summary while the results lend support to theories of evolutionary and cumulative technological progress they also show that despite the recombination potential of technical knowledge there are practical limits to the benefits of valuable inputs

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

selection of energy performance contracting business models a behavioral decision making approach abstract as a market based mechanism which can actively promote energy efficiency energy performance contracting epc is now universally accepted throughout china and has been incorporated into various business models four of these business models are frequently adopted in china the share savings model the guaranteed savings model the energy cost trust model and the finance lease model the choice of a suitable business model has been recognized as one of the most important factors in the effective implementation of epc projects in this paper the selection of epc business models is formulated as a multi criteria decision making mcdm problem when selecting an epc business model it is natural for decision makers dms to express their preferences opinions in linguistic terms given the characteristics of epc projects taking dms psychological behavior into account is of considerable and realistic significance todim an acronym in portuguese of interactive and multicriteria decision making has been verified as an effective behavioral decision making method to address the problem of epc business model selection an extended todim method based on multi granularity linguistic terms and entropy measure is proposed the sensitivity and comparison analyses show that dms psychological behavior can affect the selection order with respect to the given epc business models one case of a real life campus epc project demonstrates that the validity and applicability of the proposed extended todim method for solving the epc business model selection problem

the fiscal theory of the price level in a world of low interest rates abstract a central equation for the fiscal theory of the price level ftpl is the government budget constraint or government valuation equation which equates the real value of government debt to the present value of fiscal surpluses in the past decade the governments of most developed economies have paid very low interest rates and there are many other periods in the past in which this has been the case in this paper we revisit the implications of the ftpl in a world where the rate of return on government debt may be below the growth rate of the economy considering different sources for the low returns dynamic inefficiency the liquidity premium of government debt or its favorable risk profile this article is part of a special issue entitled fiscal and monetary policies

on representative social capital abstract this paper analyzes the behavior of subjects randomly drawn from the dutch population who reveal their capacity to provide and sustain social capital by their propensity to invest and reward investments in an economic experiment we find that heterogeneity in behavior is characterized by several asymmetries men the young and elderly and low educated individuals invest relatively less but reward significantly more investments the age effects are found to corroborate existing findings whereas those of gender and education do not higher expected levels of investments by others are found to have a positive and significant effect on own investments finally a laboratory experiment with student subjects is found to provide a lower bound of the population level of social capital

are women really more risk averse than men a re analysis of the literature using expanded methods while a substantial literature in economics and finance has concluded that women are more risk averse than men this conclusion merits investigation after briefly clarifying the difference between making generalizations about groups on the one hand and making valid inferences from samples on the other this essay suggests improvements to how economists communicate our research results supplementing findings of statistical significance with quantitative measures of both substantive difference cohen s d a measure in common use in non economics literatures and of substantive overlap the index of similarity newly proposed here adds important nuance to the discussion of sex differences these measures are computed from the data on men women and risk used in 35 scholarly works from economics finance and decision science the results are considerably more mixed and overlapping than would commonly be inferred from the broad claims made in the literature with standardized differences in means mostly amounting to considerably less than one standard deviation and the degree of overlap between male and female distributions generally exceeding 80 in addition studies that look at contextual influences suggest that these contribute importantly to observations of differences both between and within the sexes

fiscal requirements for dynamic and real determinacies in economies with private provision of liquidity a monetarist assessment we study the impact of fiscal policies on the inherent links between inflation unemployment and asset prices in an environment where firms provide liquidity and the central bank follows a constant money growth rate rule firms other than hiring workers also supply private assets that are not only useful as a store of value but also as collateral when firms are not taxed and public debt is scarce the economy is non ricardian so that real indeterminacies can be observed moreover labor market characteristics do not affect the demand for government liabilities however when agents face public and private asset scarcity labor market conditions then impact asset prices and inflation we further show that irrespective of the type of asset scarcity agents face when firms are taxed non ad valorem not only the level of tax revenues but also its composition matter for real allocations moreover we show that labor market conditions directly affect the dynamics of all government liabilities and inflation

the optimum quantity of debt abstract we find that the welfare gains to being at the optimum quantity of debt rather than the current us level are small and therefore concerns regarding the high level of debt in the us economy may be misplaced this finding is based on a model of a large number of infinitely lived households whose saving behavior is influenced by precautionary saving motives and borrowing constraints this model incorporates a different role for government debt than is found in standard models and it captures different cost benefit trade offs on the benefit side government debt enhances the liquidity of households by providing an additional means of smoothing consumption and by effectively loosening borrowing constraints on the cost side the implied taxes have adverse wealth distribution and incentive effects in addition government debt crowds out capital via higher interest rates and lowers per capita consumption

dosi s technological paradigms and trajectories insights for economics and management dosi 1982 has provided an eclectic framework which has for some time now been one of the core concepts in innovation studies while it has been very influential in public policy in management it remains underexploited many insights remain to be teased out of the framework which can help managers make better decisions this article reflects on the far reaching impact of dosi s ideas and his role in the founding and development of industrial and corporate change

misperceived social norms women working outside the home in saudi arabia we show that the vast majority of young married men in saudi arabia privately support women working outside the home wwoh and substantially underestimate support by other similar men correcting these beliefs increases men s costly willingness to help their wives search for jobs months later wives of men whose beliefs were corrected are more likely to have applied and interviewed for a job outside the home in a recruitment experiment with a local company randomly informing women about actual support for wwoh leads them to switch from an at home temporary enumerator job to a higher paying outside the home version of the job

the effects of inflation on real interest rates one of the most obvious facts of recent monetary history is that high inflation is associated with high nominal interest rates this association has been interpreted by many as supporting a superneutrality hypothesis that an increase in inflation will not affect real interest rates in the long run however the bulk of the evidence contradicts superneutrality beginning with irving fisher 1896 1930 most empirical investigations have found that fully anticipated inflation has less than a unit effect on nominal interest rates and thus reduces real interest rates even in the longest of runs this has been shown under the assumption that expectations are formed rationally douglas pearce 1979 that they take the form of an arbitrary distributed lag on past inflation rates fisher 1930 william gibson 1970 or that they are accurately represented by the livingstone expectations data pearce kajal lahiri 1976 lawrence summers 1983 attempted to measure the long run effect without an explicit theory of expectations regressing long swings in various nominal interest rates against long swings in inflation over various subintervals from 1860 to 1979 he found coefficients consistently less than unity for the post world war ii era as a whole the coefficients were in the range of 0 5 to 0 75 with standard deviations of 0 08 to 0 33 a few studies have found coefficients close to unity william yohe and denis karnosky 1969 martin feldstein and otto eckstein 1970 gibson 1972 lucas but as several authors have observed thomas sargent 1976 robert shiller 1980 john wood 1981 summers these findings are limited to a particular period of u s history approximately 1953 71 furthermore even a unitcoefficient would contradict superneutrality of the after tax real interest rate which would require a coefficient substantially greater than unity even taking into account the other inflation distortions in the tax system summers calculated that the coefficient ought to lie in the range of 1 3 to 1 5 far higher than observed these empirical findings pose a challenge to traditional monetary theory much of which implies that superneutrality should hold at least approximately for example the model of miguel sidrauski 1967 implies that the real interest rate should equal the marginal product of capital which in the long run should equal the representative household s marginal rate of time preference if this rate of time preference is a constant then in particular it will be independent of the rate of inflation if it is positively related to the household s wealth or utility then inflation can reduce the marginal product of capital somewhat through what are commonly called mundell tobin effects that is higher inflation can reduce the demand for real balances which reduces real wealth which lowers the rate of time preference and leads to further capital accumulation 2 but this real balance effect on saving is commonly recognized to be too small to make department of economics social science centre university of western ontario london canada n6a 5c2 we are grateful to charles adams norman cameron john chilton jacob frenkel david laidler ben mccallum baldev raj brad reid jack weldon john whalley ron winrck and two anonymous referees for helpful discussions and comments on earlier drafts all errors are attributable to transaction costs robert lucas 1980 finds empirical support for the hypothesis which he calls one of the central implications of the quantity theory of money it has also been adopted by a wide range of more eclectic economists as evidenced by its endorsement in two of the most popular macroeconomics textbooks rudiger dornbusch and stanley fischer 1981 pp 454 58 robert j gordon 1978 pp 289 91 2these implications of variable time preference can be drawn almost immediately from the work of hirofumi uzawa 1968 a graphical analysis is presented by david laidler 1969b who focuses on the logically equivalent question of the effects of paying interest on money

the role of liquid government bonds in the great transformation of american monetary policy abstract a fundamental shift in monetary policy occurred around 1980 the fed went from a passive policy to an active policy we study a model in which government bonds provide transactions services we present two calibrations of our model using pre and post 1980 data we show that estimates of pre and post 1980 policy rules all lie within our determinacy regions but the pre 1980 policy was a very bad monetary policy even if it avoided sunspot equilibria model simulations suggest that household welfare would have increased by 3 3 percent of permanent consumption in this period under an active policy

direct evidence on risk attitudes and migration geographic mobility is important for the functioning of labor markets because it brings labor resources to where they can be most efficiently used it has long been hypothesized that individuals migration propensities depend on their attitudes towards risk but the empirical evidence to the extent that it exists has been indirect in this paper we use newly available data from the german socio economic panel to measure directly the relationship between migration propensities and attitudes towards risk we find that individuals who are more willing to take risks are more likely to migrate between labor markets in germany this result is robust to stratifying by age sex education national origin and a variety of other demographic characteristics as well as to the level of aggregation used to define geographic mobility the effect is substantial relative to the unconditional migration propensity and compared to the conventional determinants of migration we also find that being more willing to take risks is more important for the extensive than for the intensive margin of migration

from volatility to value analysing and managing financial and performance risk in energy savings projects abstract many energy related investments are made without a clear financial understanding of their values risks and volatilities in the face of this uncertainty the investor such as a building owner or an energy service company will often choose to implement only the most certain and thus limited energy efficiency measures conversely commodities traders and other sophisticated investors accustomed to evaluating investments on a value risk and volatility basis often overlook energy efficiency investments because risk and volatility information are not provided fortunately energy efficiency investments easily lend themselves to such analysis using tools similar to those applied to supply side risk management accurate and robust analysis demands a high level of understanding of the physical aspects of energy efficiency which enables the translation of physical performance data into the language of investment with a risk management analysis framework in place the two groups energy efficiency experts and investment decision makers can exchange the information they need to expand investment in demand side energy projects in this article we first present the case for financial risk analysis in energy efficiency in the buildings sector we then describe techniques and examples of how to identify quantify and manage risk finally we describe emerging market based opportunities in risk management for energy efficiency

paradigm changing vs paradigm deepening innovation how firm scope influences firm technological response to shocks we examine the direction of firms research efforts as they respond to the shock of a sharp increase in the price of a key input in terms of direction firms can respond to this shock with paradigm changing investments that develop technologies to use substitute inputs or with paradigm deepening investments that develop technologies to improve the utilization efficiency of the existing input we develop a framework that suggests that firms emphasis on paradigm changing versus paradigm deepening investments depends on the degree of input relatedness across their businesses we test our hypotheses by examining the responses of large manufacturing firms in the united states to the oil shock of the early 1980s our framework predicts and our results show that the more related a firm s businesses are the larger its investments into paradigm changing technologies are and the smaller its investments into paradigm deepening technologies in response to the oil shock are we identify the implications of these findings for technological evolution and diversification literatures

occupational sorting of school graduates the role of economic preferences we relate risk attitudes and patience of young graduates from high school college and university measured around the time that they start their labor market career in a large representative survey to the riskiness and timing of earnings in the occupations they choose to work in we find a systematic positive and significant relation between willingness to take risks and measures of occupational earnings risks and employment risk that we derive from a large administrative data set patient individuals are significantly more likely to choose for occupations with a steep earnings profile individuals whose economic preferences are not well aligned with the riskiness and timing of earnings in their initial occupation are more likely to change to an occupation that better matches their economic preferences

do women shy away from competition do men compete too much we examine whether men and women of the same ability differ in their selection into a competitive environment participants in a laboratory experiment solve a real task first under a noncompetitive piece rate and then a competitive tournament incentive scheme although there are no gender differences in performance men select the tournament twice as much as women when choosing their compensation scheme for the next performance while 73 percent of the men select the tournament only 35 percent of the women make this choice this gender gap in tournament entry is not explained by performance and factors such as risk and feedback aversion only playa negligible role instead the tournament entry gap is driven by men being more overconfident and by gender differences in preferences for performing in a competition the result is that women shy away from competition and men embrace it

microfinance spillovers a model of competition in informal credit markets with an application to indian villages despite widespread interest in the development of microfinance spillover effects on the non using population and redistributive issues remain largely unexplored i study a competition game between microfinance institutions mfis offering joint liability loans and moneylenders offering individual loans in presence of adverse selection i show that one unintended consequence of the entry of a microfinance sector in local credit markets can be to trigger an increase in the equilibrium informal interest rate because mfis tend to attract a disproportionately safe share of the borrower pool away from incumbent moneylenders the existence of such composition externality depends crucially on the size of the microfinance sector and the risk composition of the borrower pool the model predicts a non linearly increasing relationship between informal interest rates and mfis capacity in relatively safe credit markets and no relationship in risky villages i show evidence supporting these predictions using a first hand panel database that records all credit transactions over 8 years for a sample of about 1000 households living in indian villages with extensive space and time variation in the size of their microfinance sector

the liquidation of government debt high public debt often produces the drama of default and restructuring but debt is also reduced through financial repression fr a tax on bondholders and savers via negative or below market real interest rates after world war ii capital controls and regulatory restrictions created a captive audience for government debt limiting tax base erosion fr is most successful in liquidating debt when accompanied by inflation for the advanced economies real interest rates were negative half of the time during 1945 80 average annual interest expense savings for a 12 country sample range from about 1 to 5 of gdp for the full 1945 80 period we suggest that once again fr may be part of the toolkit deployed to cope with the most recent surge in public debt in advanced economies

can the fiscal authority constrain the central bank abstract the fiscal theory of the price level ftpl suggests in its extreme form that the fiscal authority always constrains central bank behavior a fisherian model is used to show that fiscal policy can be irrelevant for the central bank and that a central bank can act independently even when constrained to monetize the government debt in a model with secured credit and scarce collateral which can explain low real interest rates the valuation of consolidated government debt needs to account for inefficiency and liquidity premia the fiscal authority may wish to tolerate inefficiency so as to finance public goods provision this article is part of a special issue entitled fiscal and monetary policies

liquidity premiums on government debt and the fiscal theory of the price level we construct a dynamic general equilibrium model where agents use nominal government bonds as collateral in secured lending arrangements if the collateral constraint binds agents price in a liquidity premium on bonds that lowers the real rate on bonds in equilibrium the price level is determined according to the fiscal theory of the price level however the market value of government debt exceeds its fundamental value we then examine the dynamic properties of the model and show that the market value of the government debt can fluctuate even though there are no changes to current or future taxes or spending the price dynamics are driven solely by the liquidity premium on the debt

rain emotions and voting for the status quo abstract do emotions affect the decision between change and the status quo we exploit exogenous variation in emotions caused by rain and analyze data on more than 870 000 municipal vote outcomes in switzerland to address this question the empirical tests are based on administrative ballot outcomes and individual postvote survey data we find that rain decreases the share of votes for political change our robustness checks suggest that this finding is not driven by changes in the composition of the electorate and changes in information acquisition in addition we provide evidence that rain might have altered the outcome of several high stake votes we discuss the psychological mechanism and document that rain reduces the willingness to take risks a pattern that is consistent with the observed reduction in the support for change

the perils of taylor rules abstract since john taylor s 1993 carnegie rochester conf ser publ policy39 195 214 seminal paper a large literature has argued that active interest rate feedback rules that is rules that respond to increases in inflation with a more than one for one increase in the nominal interest rate are stabilizing in this paper we argue that once the zero bound on nominal interest rates is taken into account active interest rate feedback rules can easily lead to unexpected consequences specifically we show that even if the steady state at which monetary policy is active is locally the unique equilibrium typically there exist an infinite number of equilibrium trajectories originating arbitrarily close to that steady state that converge to a liquidity trap that is a steady state in which the nominal interest rate is near zero and inflation is possibly negative journal of economic literature classification numbers e52 e31 e63

monetary fiscal interactions with endogenous liquidity frictions i develop a tractable macro model with endogenous asset liquidity to understand monetary fiscal interactions with liquidity frictions agents face idiosyncratic investment risks and meet financial intermediaries in competitive search markets asset liquidity is determined by the search friction and the cost of operating the financial intermediaries and it drives the financing constraints of entrepreneurs those who have investment projects and their ability to invest in contrast to private assets government bonds are fully liquid and can be accumulated in anticipation of future opportunities to invest a higher level of real government debt enhances the liquidity of entrepreneurs portfolios and raises investment however the issuance of debt also raises the cost of financing government expenditures a higher level of distortionary taxation and or a higher real interest rate a long run optimal supply of government debt emerges i also show that a proper mix of monetary and fiscal policies can avoid a deep financial recession

risk aversion wealth and background risk we use household survey data to construct a direct measure of absolute risk aversion based on the maximum price a consumer is willing to pay for a risky security we relate this measure to consumer s endowments and attributes and to measures of background risk and liquidity constraints we find that risk aversion is a decreasing function of the endowment thus rejecting cara preferences we estimate the elasticity of risk aversion to consumption at about 0 7 below the unitary value predicted by crra utility we also find that households attributes are of little help in predicting their degree of risk aversion which is characterized by massive unexplained heterogeneity we show that the consumer s environment affects risk aversion individuals who are more likely to face income uncertainty or to become liquidity constrained exhibit a higher degree of absolute risk aversion consistent with recent theories of attitudes toward risk in the presence of uninsurable risks jel d1 d8

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

wage gains associated with height as a form of health human capital height is consulted as a latent indicator of early nutrition and lifetime health status height is observed to increase in recent decades in populations where per capita national income has increased and public health activities have grown height is determined by genetic make up and realized in part through satisfactory nutrition and health related care and conditions alternative instrumental variables iv are explored which proxy price and income constraints which are expected to influence the latter reproducible human capital investments in height i report ols and iv estimates of the partial effect of height on log hourly wages in recent national surveys from three countries ghana brazil and the united states i conclude that the human capital productivity effect of height estimated by parent education ivs in the us and ghana are many times larger than the ols estimates and in ghana and brazil the regional price ivs estimates also imply a substantially larger human capital wage effects of height compared with the ols estimates the ols estimates of height effects on wages are dominated by the genetic variation in height and appear to understate substantially the human capital returns to health and nutrition inputs which increase adult height this abstract was borrowed from another version of this item

technological paradigms past present and future the special issue is introduced and contextualised technological paradigms emerged as science push models of innovation were being displaced by demand pull models that justified a more international market focussed political economy technological paradigms help explain the strengths and weaknesses of both models and why the governance choice is not between either markets or governments but an appropriate mixture of both while technological paradigms have successfully shifted policy and management attention to building stocks of knowledge they still have substantial underexploited analytical potential

scarcity of safe assets inflation and the policy trap abstract a goal of this paper is to make sense of the seemingly puzzling behavior of interest rates and inflation and the role of central banks in that behavior during and after the great recession particularly in the united states to this end we construct a model in which government debt plays a key role in exchange and can bear a liquidity premium if asset market constraints bind then there need not be deflation under an indefinite zero interest rate policy zirp further zirp may not be optimal under these circumstances a taylor rule central banker could be subject to a zirp trap and persistently undershoot target inflation as well a liquidity premium on government debt creates additional taylor rule perils because of a persistently low real interest rate we make a case that this is the key policy predicament currently faced by many central banks in the world

tempus fugit time pressure in risky decisions we study the effects of time pressure on risky decisions for pure gain prospects pure loss prospects and mixed prospects involving both gains and losses in two experiments we find that time pressure has no effect on risk attitudes for gains but increases risk aversion for losses for mixed prospects subjects become simultaneously more loss averse and more gain seeking under time pressure depending on the framing of the prospects the results suggest the importance of aspiration levels and thus the overall probability to break even under time pressure we discuss the implications of our findings for decision making situations that involve time pressure

the effect of adolescent experience on labor market outcomes the case of height taller workers receive a wage premium net of differences in family background the disparity is similar in magnitude to the race and gender gaps we exploit variation in an individual s height over time to explore how height affects wages controlling for teen height essentially eliminates the effect of adult height on wages for white men the teen height premium is not explained by differences in resources or endowments the teen height premium is partially mediated through participation in high school sports and clubs we estimate the monetary benefits of a medical treatment for children that increases height

performance responses to competition across skill levels in rank order tournaments field evidence and implications for tournament design tournaments are widely used in the economy to organize production and innovation we study individual data on 2775 contestants in 755 software algorithm development contests with random assignment the performance response to added contestants varies nonmonotonically across contestants of different abilities precisely conforming to theoretical predictions most participants respond negatively whereas the highest skilled contestants respond positively in counterfactual simulations we interpret a number of tournament design policies number of competitors prize allocation and structure number of divisions open entry and assess their effectiveness in shaping optimal tournament outcomes for a designer

ahp based risk analysis of energy performance contracting projects in russia abstract understanding and properly managing risks that could potentially affect the target and performance based profits of energy performance contracting epc projects are essential it is particularly important for the establishment and success of energy service companies escos acting in the vulnerable environment of the vast but highly energy inefficient russian market this study systematically explores common risk factors and causes of risk associated with epc projects executed in three russian sectors 1 industrial 2 housing and communal services and 3 public several interviews with the russian epc experts were accomplished and a qualitative risk assessment by using an analytic hierarchy process ahp approach the data were obtained from a web based questionnaire survey conducted among russian epc project executors for each focus sector a specific preference based ranking of the identified risk factors and causes of risk was derived the ahp results show that causes of risk related to the financial and regulatory aspects contribute most to the riskiness of epc projects performed in all three focus sectors in russia calling for the special attention of epc policy and business makers due to sectorial particularities and different actors involved we conclude that there is a need for elaboration of sector specific contractual schemes for epc projects

interest rate rules and price determinacy the role of transactions services of bonds abstract interest rate rules have been associated with price indeterminacy when they do not respond aggressively enough to inflation price indeterminacy is typically associated with indeterminacy of real bond balances suggesting that the missing element is a meaningful role for government bonds we assume that government bonds provide arbitrarily small transactions services and show that this can dramatically change the local and global determinacy conditions in particular the specification of fiscal policy affects the aggressiveness with which monetary policy must respond to inflation to deliver local determinacy a range of passive monetary policies even an interest rate peg may yield determinacy

financial decision making are women really more risk averse 40 males 33 females gain gambling gain domain loss gambling loss domain a contextual frames b abstract gambling frames studies the application of experimental methods provided stronger control of the economic environment in which decisions were made we elicited data which call into question the prevalence of stereotypic risk attitudes in financial decision making first we find that the comparative risk propensity of male and female subjects is strongly dependent on the financial decision setting second and more important we observe no gender differences in risk propensity when subjects face contextual decisions since in practice financial decisions are always contextual our results suggest that the above gender stereotype may not reflect true male and female attitudes toward financial risks i gender specific risk behavior an experimental design our experiment was designed to examine gender specific risk propensity in decisions relevant for investors and managers table 1 gives an overview of the experimental design in the main treatment we implemented risky choices in the form of investment and insurance decisions choice behavior in this treatment henceforth called the context treatment directly measures the risk behavior of male and female subjects in contextual financial decisions we also ran a control treatment in which the same risky choices were presented as abstract gambling decisions this control treatment henceforth called the abstract treatment allows us to validate the risk behavior induced by our experimental procedure in the light of the above mentioned gambling evidence in the context treatment subjects were confronted with risky choices in two different decision contexts subjects first had to complete a series of investment decisions they were then presented with a series of identical choices this time however framed as insur1 wealth effects from income differences outside the laboratory may still affect risk behavior in our experiment they are controlled for in our model 2 experimental instructions are available in german from the authors or in english from our web page www wif ethz ch publikationen htm ance decisions each investment and insurance decision incorporated a choice between a risky lottery and a certain payoff with the series of choices implemented in the two frames we elicited our subjects certainty equivalents for the same four risky lotteries l1 l2 l3 l4 in both contexts we implemented two frames in the context treatment in order to measure the risk propensity of subjects toward both perceived gains and perceived losses in both frames all possible payoffs for each decision were positive in the investment frame these payoffs were also presented as gains while in the insurance frame the same payoffs were presented as losses relative to an initial endowment therefore elicited certainty equivalents in the investment frame measure subjects risk propensities in the gain domain while certainty equivalents in the insurance frame measure risk propensity in the loss domain if in contextual financial decisions female subjects are generally more risk averse than men our results should display ceteris paribus lower female certainty equivalents in both the investment and insurance frames 3 the four lotteries l1 l2 l3 and l4 each had two possible outcomes payoffs in swiss francs 1 sfr a 0 60 and their probabilities were 30 sfr 6 10 sfr 6 30 sfr 2 10 sfr 2 30 sfr 6 10 sfr 6 and 50 sfr 2 20 sfr 2 respectively 4 experimental evidence suggests that individual risk propensity will vary systematically between the gain and loss domain daniel kahneman and amos tversky 1979 383 vol 89 no 2 gender and economic transactions 3y16 my68 mp 383 friday dec 10 08 20 am lp aer my68 figure 1 differences in mean certainty equivalents ce between male and female subjects by frame note certainty equivalents and male female differences are measured in swiss francs in the abstract treatment we confronted a different group of subjects with exactly the same risky decisions as those in the main treatment however as mentioned before all choices in this control treatment were framed as abstract gambling decisions again two frames were implemented in the gaingambling and loss gambling frames we measured the risk attitudes of subjects toward gambles in the gain and loss domain respectively subjects in both treatments were told in advance that one of their choices would determine their experimental earnings further all subjects completed a post experimental questionnaire which yielded information on each subject s disposable income this information is necessary to exclude wealth effects due to income differences outside the laboratory as an explanation of gender specific choice behavior

consistency and heterogeneity of individual behavior under uncertainty by using graphical representations of simple portfolio choice problems we generate a very rich dataset to study behavior under uncertainty at the level of the individual subject we test the data for consistency with the maximization hypothesis and we estimate preferences using a two parameter utility function based on faruk gul 1991 this specification provides a good interpretation of the data at the individual level and can account for the highly heterogeneous behaviors observed in the laboratory the parameter estimates jointly describe attitudes toward risk and allow us to characterize the distribution of risk preferences in the population

an empirical analysis of earnings and employment risk the mean and higher moments of the distribution of future income are crucial determinants of individual choices these moments are usually estimated in panel data from past income realizations inthis article we rely instead on subjective expectations available in the 1995 survey of household income and wealth a large random sample representative of italian households the survey elicits information on the distribution of future earnings and on the probability of unemployment analysis of this distribution helps us understand how individual uncertainty evolves over the life cycle and if attitudes toward risk affect occupational choices and income riskiness

acting wife marriage market incentives and labor market investments do single women avoid career enhancing actions because these actions signal undesirable traits like ambition to the marriage market while married and unmarried female mba students perform similarly when their performance is unobserved by classmates on exams and problem sets unmarried women have lower participation grades in a field experiment single female students reported lower desired salaries and willingness to travel and work long hours on a real stakes placement questionnaire when they expected their classmates to see their preferences other groups responses were unaffected by peer observability a second experiment indicates the effects are driven by observability by single male peers