resolving new keynesian anomalies with wealth in the utility function at the zero lower bound the new keynesian model predicts that output and inflation collapse to implausibly low levels and that government spending and forward guidance have implausibly large effects to resolve these anomalies we introduce wealth into the utility function the justification is that wealth is a marker of social status and people value status since people partly save to accrue social status the euler equation is modified as a result when the marginal utility of wealth is sufficiently large the dynamical system representing the zero lower bound equilibrium transforms from a saddle to a source which resolves all the anomalies

how general are time preferences eliciting good specific discount rates abstract this paper tests the commonly used assumption that people apply a single discount rate to the utility from different sources of consumption using survey data from uganda with both hypothetical and incentivized choices over different goods we elicit time preferences from about 2400 subjects we reject the null of equal discount rates across goods the average person in our sample is more impatient about sugar meat and starchy plantains than about money and a list of other goods we review the assumptions to recover discount rates from experimental choices for the case of good specific discounting consistently with the theoretical framework we find convergence in discount rates across goods for two groups expected to engage in or think about arbitraging the rewards traders and individuals with large quantities of the good at home as an application we evaluate empirically the conditions under which good specific discounting could predict a low asset poverty trap

preference heterogeneity in experiments comparing the field and laboratory do laboratory experiments provide a reliable basis for measuring field preferences economists recognize that preferences can differ across individuals but only a few attempts have been made to elicit individual preferences for representative samples of a population in a particular geographical area region or country our primary objective is to directly compare estimates of preferences elicited from a convenience sample and the estimates for the wider population from which that sample is drawn we examine the strengths and weaknesses of laboratory and field experiments to detect differences in preferences over risk and time that are associated with standard observable characteristics of the individual

working over time dynamic inconsistency in real effort tasks experimental tests of dynamically inconsistent time preferences have largely relied on choices over time dated monetary rewards several recent studies have failed to nd the standard patterns of present bias however such monetary studies contain oftendiscussed confounds in this paper we sidestep these confounds and investigate choices over consumption real eort in a longitudinal experiment we pair this eort study with a companion monetary discounting study we conrm very limited time inconsistency in monetary choices however subjects show considerably more present bias in eort furthermore present bias in the allocation of work has predictive power for demand of a meaningfully binding commitment device therefore our ndings validate a key implication of models of dynamic inconsistency with corresponding policy implications

the reasonableness of non constant discounting abstract the typical method for valuing the future goods and harms of a public policy alternative is by means of a constant annual discount rate this paper examines the reasonableness for public policy analysis of non constant discounting methods that unlike constant discounting can accord considerable importance to outcomes in the distant future we examine temporal consistency and economic efficiency as reasons for the use of constant discounting and we argue that these reasons do not apply for a public policy choice whose effects are long range and irreversible

the informational content of initial public offerings the ability of capital markets to distinguish firms of different value by the size of their initial equity offerings is attenuated when insiders can sell equity more than once a model is developed in which there is price risk from holding equity between periods when the uncertainty is small there must be pooling in the first period when uncertainty is large the pooling equilibria dominate the separating equilibrium the size of an entrepreneur s initial public offering of equity can be informative this point was made in leland and pyle 1977 and stiglitz 1982 an entrepreneur with a good project can signal the value of the project by his or her willingness to retain equity an implicit assumption of this analysis is that the entrepreneur has only one opportunity to sell equity the assumption of a single sale is important since once the entrepreneur has signalled his or her project value by retaining equity investors should be willing to purchase the remaining equity however if entrepreneurs with bad projects foresee this they too may wish to retain equity initially and render themselves indistinguishable from entrepreneurs with good projects the current paper develops a model with two trading periods to capture the impact of having repeat sales of equity there is a public offering in the first period then the entrepreneur can make an open market sale in the second period however there is exogenous price risk which makes it costly for the entrepreneur to wait to sell in this context the value of the entrepreneur s project may not be revealed in the first period retaining equity is not very costly when uncertainty is small and there will only be pooling equilibria in this case in such a situation no information is revealed in the first period when the level of uncertainty is great there does exist a separating equilibrium however the pooling equilibria pareto dominate the separating equilibrium throughout the analysis the focus will be on paretooptimal equilibria the idea that an informed agent can profitably trade over time has been examined in related contexts kyle 1985 looked at the optimal trading strategy for an insider whose sequence of purchases is hidden in the aggregate order flow in equilibrium the insider s information is not completely incorporated into the market price until the close of trading

social motives vs social influence an experiment on interdependent time preferences we report experimental evidence on the effects of social preferences on intertemporal decisions to this aim we design an intertemporal dictator game to test whether dictators modify their discounting behavior when their own decision is imposed on their matched recipients we run four different treatments to identify the effect of payoffs externalities from those related to information and beliefs our descriptive statistics show that heterogeneous social time preferences and information about others time preferences are significant determinants of choices dictators display a marked propensity to account for the intertemporal preferences of recipients both in the presence of externalities social motives and or when they know about the decisions of their matched partners social influence we also perform a structural estimation exercise to control for heterogeneity in risk attitudes as for individual behavior our estimates confirm previous studies in that high risk aversion is associated with low discounting as for social behavior we find that social motives outweigh social influence especially when we restrict our sample to pairs of dictators and recipients who satisfy minimal consistency conditions

discounting behaviour and the magnitude effect evidence from a field experiment in denmark we evaluate the claim that individuals exhibit a magnitude effect in their discounting behaviour where higher discount rates are inferred from choices made with lower principals all else being equal if the magnitude effect is quantitatively significant it is not appropriate to use one discount rate that is independent of the scale of the project for cost benefit analysis and capital budgeting using data from a field experiment in denmark we find statistically significant evidence of a magnitude effect that is much smaller than is claimed this evidence surfaces only if one controls for unobserved individual heterogeneity in the population

the many faces of tiebout bias in local education demand parameter estimates abstract tiebout sorting can occasion bias in public service demand parameter estimates in at least three distinct ways this paper identifies each of these types of tiebout bias and provides estimates of each of their magnitudes first the empirical results suggest that the type of tiebout bias first identified by goldstein and pauly is positive and large but that their proposed method of correcting for that bias substantially overestimates its magnitude second failing to control for unobservable taste variations that are negatively correlated with the difference between an individual household s income and the income of the decisive voter is found to impart a significant negative bias into the income parameter estimate we find that conventional demographic descriptors do not adequately control for such taste variations and consequently fail to protect the income parameter estimates from this type of tiebout bias finally the significant negative relationship between individual household school expenditure demands and deviations of individual household income from the income of the decisive voter suggest that tiebout sorting is a significant phenomenon

non hyperbolic time inconsistency the commonly used hyperbolic and quasi hyperbolic discount functions have been developed to accommodate decreasing impatience which is the prevailing empirical finding in intertemporal choice in particular for aggregate behavior however these discount functions do not have the flexibility to accommodate increasing impatience or strongly decreasing impatience this lack of flexibility is particularly disconcerting for fitting data at the individual level where various patterns of increasing impatience and strongly decreasing impatience will occur for a significant fraction of subjects this paper presents discount functions with constant absolute cadi or constant relative crdi decreasing impatience that can accommodate any degree of decreasing or increasing impatience in particular they are sufficiently flexible for analyses at the individual level the cadi and crdi discount functions are the analogs of the well known cara and crra utility functions for decision under risk

risk aversion and incentive effects new data without order effects holt and laury 2002 used a menu of ordered lottery choices to make inferences about risk aversion under various payment conditions the main results of that paper were a subjects are risk averse even for relatively small payments of less than 5 b risk aversion increases sharply with large increases in the scale of cash payoffs and c there is no significant effect from increasing the scale of hypothetical payment with a few exceptions noted in the paper all treatments began with a low payment choice followed by a choice with hypothetical payments that had been scaled up by 20 50 or 90 followed by a real cash decision with the same high payment scale 20 50 or 90 followed by a single final low 1 real payment choice those in the 90 treatment could earn amounts ranging from 9 00 to 346 50 in this task as glenn w harrison et al 2004 correctly note this design confounds order and treatment effects since the high real payment choice was always completed after the low real and high hypothetical payment tasks in a new experiment reported below we first seek to replicate harrison et al s finding that the order effect participating in a low payment choice before making a high payment choice magnifies the scale effect in a second treatment each subject completes the menu of lottery choices under just one payment condition 1 or 20 real or hypothetical thereby eliminating any order effects i new data

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

the fragility of time time insensitivity and valuation of the near and far future we propose that the temporal dimension is fragile in that choices are insufficiently sensitive to it and second such sensitivity as exists is exceptionally malleable unlike other dimensions such as money which are attended by default to test this we axiomatize a constant sensitivity discount function and in four studies we show that the degree of time sensitivity is inadequate relative to the compound discounting norm and strongly susceptible to manipulation time sensitivity is increased by a comparative within subject presentation experiment 1 direct instruction experiment 3 and provision of a visual cue for time duration experiment 4 time sensitivity is decreased using a time pressure manipulation experiment 2 in each study the sensitivity manipulation has an opposite effect on near future and far future valuations increased sensitivity decreases discounting in the near future and increases discounting in the far future in contrast such sensitivity manipulations have little effect on the money dimension

australian ipo pricing in the short and long run abstract we analyse both initial underpricing and post listing returns for australian ipos our results are consistent with the view that unique institutional characteristics may have overwhelmed previous australian tests of equilibrium models of ipo underpricing the results also show that australian ipos significantly underperform market movements in the three year period subsequent to listing further investigation of these anomalous post listing returns lead us to reject various speculative bubble explanations rather the evidence suggests a curvilinear relationship between initial and subsequent returns although the economic significance of the relationship is low

asset integration and attitudes to risk theory and evidence measures of risk attitudes derived from experiments are often questioned because they are based on small stakes bets and do not account for the extent to which the decision maker integrates the prizes of the experimental tasks with personal wealth we exploit the existence of detailed information on individual wealth of experimental subjects in denmark and directly estimate risk attitudes and the degree of asset integration consistent with observed behavior the behavior of the adult danes in our experiments is consistent with partial asset integration they behave as if some small fraction of personal wealth is combined with experimental prizes in a utility function and that this combination entails less than perfect substitution our subjects do not perfectly asset integrate the implied risk attitudes from estimating these specifications imply risk premia and certainty equivalents that are a priori plausible under expected utility theory or rank dependent utility models these are reassuring and constructive solutions to payoff calibration paradoxes in addition the rigorous structural modeling of partial asset integration points to a rich array of neglected questions in risk management and policy evaluation in important field settings

the winner s curse legal liability and the long run price performance of initial public offerings in finland abstract rationing data for initial public offerings ipos in the finnish market make possible a test of rock s 1986 winner s curse hypothesis the evidence from 80 ipos issued between 1984 and 1989 confirms the presence of the winner s curse average returns adjusted for the bias in allocation are lower than average unadjusted returns but the initial returns of these ipos appear unrelated to lawsuit avoidance as the sample firms seem unlikely to incur legal liabilities in the long run consistent with the evidence in the united states the ipo firms substantially underperform the helsinki stock exchange value weighted index

non constant discounting social welfare and endogenous growth with pollution externalities abstract we analyze the effect of non constant discounting on economic growth and social welfare in an endogenous growth model with pollution externalities for time consistent agents who play a game against their future selves the balanced growth equilibrium is compared to the case of standard exponential discounting a decaying instantaneous discount rate leads to slower growth in a centralized economy while its effect for a competitive economy is ambiguous interestingly when comparing the planned and the competitive equilibria the assumption of non constant discounting may imply greater social welfare in the market equilibrium under two conditions first the pollution externality on utility must be large with respect to the externality on production so that the central planner slows down growth below the growth rate in the market economy secondly individuals degree of impatience should decrease sharply with the time distance from the present concerning policy implications we observe that under log utility policies may not be necessary while for an isoelastic utility with an elasticity lower than one introducing policy instruments is less effective than under constant discounting

convex time budgets and individual discount rates in the long run the purpose of this study is to use experimental data to estimate individual discount rates and test for hyperbolic discounting over a long time horizon to do this we employ the convex time budget experimental approach with cash payments over a 20 year time horizon to date there are few experimental studies that explore discount rates beyond a 1 year time horizon previous experimental studies that focus on short time horizons find high discount rates which may not be applicable to decisions that affect outcomes in the distant future our findings are quite similar to the average rate of 4 9 found by grijalva et al environ resour econ 59 39 63 2014 who similarly use a 20 year time horizon but use the multiple price list elicitation method along with payment via government savings bonds we find annual discounts rates in the range of 1 9 5 5 depending on the specific model used we also find evidence for declining discount rates and that this hyperbolic pattern of behavior is related to the confidence subjects have in receiving distant future payments

present bias quasi hyperbolic discounting and fixed costs in this paper we elicit preferences for money time pairs via experimental techniques we estimate a general specification of discounting that nests exponential and hyperbolic discounting as well as various forms of present bias including quasi hyperbolic discounting our experimental data do not appear peculiar in any dimension in particular we find clear evidence for present bias as most of the previous literature however no evidence for quasi hyperbolic discounting is found and the data strongly favor instead a specification with a small present bias in the form of a fixed cost of the order of 4 on average across subjects with such a fixed cost the curvature of discounting is imprecisely estimated and exponential discounting is hardly rejected in this specification the present bias tends to vanish for economically relevant monetary rewards

are risk aversion and impatience related to cognitive ability is the way that people make risky choices or tradeoffs over time related to cognitive ability this paper investigates whether there is a link between cognitive ability risk aversion and impatience using a representative sample of the population and incentive compatible measures we conduct choice experiments measuring risk aversion and impatience over an annual time horizon for a randomly drawn sample of roughly 1 000 german adults subjects also take part in two different tests of cognitive ability which correspond to sub modules of one of the most widely used iq tests interviews are conducted in subjects own homes we find that lower cognitive ability is associated with greater risk aversion and more pronounced impatience these relationships are significant and robust to controlling for personal characteristics educational attainment income and measures of credit constraints we perform a series of additional robustness checks which help rule out other possible confounds

signalling and the pricing of new issues this paper develops a signalling model with two signals two attributes and a continuum of signal levels and attribute types to explain new issue underpricing both the fraction of the new issue retained by the issuer and its offering price convey to investors the unobservable intrinsic value of the firm and the variance of its cash flows many of the model s comparative statics results are novel empirically testable and consistent with the existing empirical evidence on new issues in particular the degree of underpricing which can be inferred from observable variables is positively related to the firm s post issue share price

parental choice of school characteristics estimation using state wide data this article attempts to proxy parental alienation from public schools across states in order to obtain measures of quality dispersion and of the educational characteristics to which families are most sensitive the indicator of alienation is the choice of private schooling since the likelihood of such choice is known from published enrollment ratios the task is to explain why they vary so widely across states of the newer hypotheses tested that of teacher strike records is strongly significant and in the expected direction other novel findings concern the share of administration teacher memberships of the national education association and the proportion of whites to nonwhites in the population

value functions for infinite period planning cost benefit and risk analysis studies that model tradeoffs between the present and the distant future by means of present value discounting have been criticized for according the future and thus future generations far too little importance this paper presents an alternative means of modeling tradeoffs between different periods that accords the future far more importance than present value discounting and that is no more difficult to apply the paper also presents a means of modeling the preference issue of concern for equity or stability between different periods

an empirical investigation of ipo returns and subsequent equity offerings abstract several recent papers present signaling models in which firms underprice their initial public offerings of equity ipos so that they can subsequently issue seasoned equity at more favorable prices we test the implications of these models we find a positive relation between ipo underpricing and the probability and size of subsequent seasoned offerings although these results are consistent with the implications of the signaling hypotheses the economic significance appears weak we conduct additional tests to evaluate other explanations for these findings and find the alternatives more compelling

a dual self model of impulse control we propose that a simple dual self model gives a unified explanation for several empirical regularities including the apparent time inconsistency that has motivated models of quasi hyperbolic discounting and rabin s paradox of risk aversion in the large and small the model also implies that self control costs imply excess delay as in the o donoghue and rabin models of quasi hyperbolic utility and it explains experimental evidence that increased cognitive load makes temptations harder to resist the base version of our model is consistent with the gul pesendorfer axioms but we argue that these axioms must be relaxed to account for the effect of cognitive load

strotz meets allais diminishing impatience and the certainty effect abstract decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward this work argues that diminishing impatience originates from the distinction between the certain present and the risky future a simple functional representation of preferences exhibiting time inconsistency when the future is uncertain is derived experimental evidence which is inconsistent with other formulations that account for diminishing impatience supports the proposed approach the new theory uncovers a tight relation between diminishing impatience and well known behavioral regularities in choice under risk and uncertainty jel d12 d81

four score and seven years from now the date delay effect in temporal discounting we describe a new anomaly in intertemporal choice the date delay effect discount rates that are imputed when time is described using calendar dates e g on october 17 are markedly lower than those revealed when future outcomes are described in terms of the corresponding delay e g in six months date descriptions not only reduce discount rates but also affect the implied shape of the discount function when inferred from intertemporal choices between options referenced by calendar dates the discount function appears markedly less hyperbolic we discuss potential psychological bases of the date delay effect its implications and other modes of temporal reference

expo power utility a flexible form for absolute and relative risk aversion a new utility function which i call expo power is proposed that exhibits decreasing constant or increasing absolute risk aversion and decreasing or increasing relative risk aversion depending on parameter values numerical analysis suggests that the expo power function performs well in incorporating these risk preference structures and that arbitrary risk preference specifications may lead to biased risk response estimates

attention driven demand for bonus contracts abstract in many markets supply contracts include a series of small regular payments made by consumers and a single large bonus that consumers receive at some point during the contractual period but if for instance its production costs exceed its value to consumers such a bonus creates inefficiencies we offer a novel explanation for the frequent occurrence of bonus contracts which builds on a model of attentional focusing our main result identifies market conditions under which bonus contracts should be observed while a monopolist pays a bonus to consumers if at all only for low value goods firms standing in competition always i e independent of the consumers valuation offer bonus contracts thus competition does not eliminate but rather exacerbates inefficiencies arising from contracting with focused agents common contract schemes in markets for electricity telephony and bank accounts are consistent with our model but cannot be reconciled with alternative approaches such as models on consumption smoothing quasi hyperbolic discounting or switching costs

a direct test of rock s model of the pricing of unseasoned issues unique data availability and institutional arrangements for new issues in singapore allow a direct test of the empirical implications of rock s model of pricing unseasoned new issues our empirical results are consistent with the model specifically we find that the unseasoned new issues anomaly disappears when the rationing associated with new issues is incorporated into the analysis the winner s curse is evident in allocation patterns used in singapore

ipo underpricing explanations implications from investor application and allocation schedules initial public offers ipos made on the stock exchange of singapore routinely provide sufficiently detailed data to allow reconstruction of both the application and allocation schedules we show that large investors tend to preferentially request participation in ipos with higher initial returns consistent with these investors being better informed we also show that inferences based exclusively on application strategies are quite different from those drawn on investor allocations our results suggest that caution is necessary in assessing the relative merit of competing explanations for ipo underpricing where the underlying demand is not identified

individual preferences and the exponential growth bias abstract the exponential growth bias egb refers to individuals underestimation of the effects of exponential growth and has been shown to affect important financial decisions such as retirement savings we develop and test a novel experimental design to evaluate the magnitude of the egb based on multiple price lists our design simultaneously elicits the egb as well as subjects utility curvatures and time preferences allowing for non linear utility we structurally estimate the magnitude of the egb as about half as large as when linear utility is assumed these results shed light on the relationship between individual preferences and the egb

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

endogenous time preferences of forest goods and community based forest management abstract in the economic analysis of cbfm people s discount rates are assumed exogenous and same for all goods we examined the validity of this assumption by eliciting the discount rates of households for grass timber fuelwood and money and analyzed the impacts of various personal and economic factors on households discount rates we found that time preferences are endogenous and good specific a good proportion of households have infinite discount rates for forest goods the mean values of monthly discount rates for households that indicated finite discount rates are 0 67 for timber 6 83 for fuelwood 55 49 for grass and 3 47 for money the availability of alternative sources and current consumption of the forest goods are two main determinants of a household s discount rates the study provides many useful insights for the design and implementation of cbfm programs the concept of mental accounting should be used for economic analyses of cbfm programs different management strategies should be adopted for different forest goods and alternative sources should be provided to meet the current needs of the households

anatomy of initial public offerings of common stock initial public offerings of common stocks ipos are typically underpriced in this paper the author develops and tests the hypothesis that underpricing serves as a form of insurance against legal liability and the associated damages to the reputations of investment bankers the empirical results based on samples of ipos that were brought to the market before and after the securities act of 1933 provide considerable support for the implicit insurance hypothesis specifically gross underpricing and market segmentation between prestigious and fringe investment bankers in originating unseasoned new issues appear to be peculiar to the post 1933 era a number of studies have documented that unseasoned common stocks typically garner large positive abnormal returns during a short period following the initial offering in his recent review of the empirical evidence on the initial returns of common stock offerings smith 36 concluded that the returns from offer price to after market price have exceeded fifteen percent his calculations did not include some of the earlier results obtained by mcdonald and fisher 23 and logue 20 when their samples are combined with those in smith s review the initial returns of unseasoned equity offerings appear even larger over seventeen percent these results imply that underwriters consistently offer the securities at substantial discounts from their values that are set in the after market in other words initial public offerings ipos appear to be underpriced what is even more puzzling is the fact that in some time periods underpricing appears to be systematically larger than in other periods ibbotson and jaffe 15 and ritter 29 have documented that during the postwar era there have been a number of periods in which the initial returns of common stocks have been extremely high ritter for example reported that the average return from the offer price to the first after market price was over forty eight percent for ipos in 1980 and 1981 1 similarly the initial returns of unseasoned issues of common stock brought to the market in 1950 1951 1961 and 1968 were unusually large these periods in which ipos were grossly underpriced are referred to as the hotissue markets why do investment bankers underprice ipos why do issuers

evidence of variable discount rates and non standard discounting in mortality risk valuation time discounting is central to the valuation of future health and mortality risks in public sector allocative decision making particularly for environmental policies with delayed health impacts using a risk risk trade off survey we elicit discount rates for fatality risks and establish discounting functional forms on both a sample and an individual level we find wide variation in implicit discount rates for fatality risk between individuals as well as between individual heterogeneity in discounting functional forms in aggregate the sample is best characterised by subadditive discounting our work has implications for the academic investigation of intertemporal choice involving mortality risks and potentially for the evaluation of policy options with delayed mortality risk outcomes a thought experiment cautions against the standard practice of assuming that exponential discounting characterises society s time preferences

discounting behavior a reconsideration we re evaluate the theory experimental design and econometrics behind claims that individuals exhibit non constant discounting behavior theory points to the importance of controlling for the non linearity of the utility function of individuals since the discount rate is defined over time dated utility flows and not flows of money it also points to a menagerie of functional forms to characterize different types of non constant discounting behavior the implied experimental design calls for individuals to undertake several tasks to allow us to identify these models and to several treatments such as multiple horizons and the effect of allowing for a front end delay on earlier payments the implied econometrics calls for structural estimation of the theoretical models allowing for joint estimation of utility functions and discounting functions using data collected from a representative sample of 413 adult danes in 2009 we draw striking conclusions assuming an exponential discounting model we estimate discount rates to be 5 6 on average this is significantly lower than all previous estimates using controlled experiments we also find no evidence to support quasi hyperbolic discounting or fixed cost discounting and only modest evidence to support other specifications of non constant discounting furthermore the evidence for non constant discounting while statistically significant is not economically significant in terms of the size of the estimated discount rates we undertake extensive robustness checks on these findings including a detailed review of the previous comparable literature

two sides of the same rupee comparing demand for microcredit and microsaving in a framed field experiment in rural pakistan standard models often predict that people should either demand to save or demand to borrow but not both we hypothesise instead that saving and borrowing among microfinance clients are substitutes satisfying the same underlying demand for a regular schedule of deposits and a lump sum withdrawal we test this using a framed field experiment among women participating in group lending arrangements in rural pakistan the experiment inspired by the rotating structure of a rosca involves randomly offering credit products and savings products to the same subject pool we find high demand both for credit products and for savings products with the same individuals often accepting both a credit product and a savings product over the three experiment waves this behavior can be rationalised by a model in which individuals prefer lump sum payments for example to finance a lumpy investment and in which individuals struggle to hold savings over time we complement our experimental estimates with a structural analysis in which different types of participants face different kinds of constraints our structural framework rationalises the behaviour of 75 of participants of these rationalised participants we estimate that two thirds have high demand for lump sum payments coupled with savings difficulties these results imply that the distinction between microlending and microsaving may be largely illusory participants value a mechanism for regular deposits and lump sum payments whether that is structured in the credit or the debt domain

the costs of going public abstract this paper presents evidence regarding the two quantifiable components of the costs of going public direct expenses and underpricing together these costs average 21 22 of the realized market value of the securities issued for firm commitment offers and 31 87 for best efforts offers for a given size offer the direct expenses are of the same order of magnitude for both contract types but the underpricing is greater for best efforts offers an explanation of why some firms choose to use best efforts offers in spite of their apparent higher total costs is given

signalling by underpricing in the ipo market abstract empirical evidence suggests the existence of hot issue markets for initial public offerings in certain periods and in certain industries new issues are underpriced and rationing occurs this paper develops a model consistent with this observation which assumes the firm itself best knows its prospects in certain circumstances firms with the most favorable prospects find it optimal to signal their type by underpricing their initial issue of shares and investors know that only the best can recoup the cost of this signal from subsequent issues

risk aversion and incentive effects comment charles a holt and susan k laury 2002 develop an experimental design to determine the risk attitude of an individual they use their observations to argue that increased incentives appear to change risk attitudes leading to greater risk aversion popular utility functions that do not allow for such effects are therefore misspecified building on this finding they estimate a flexible utility function that characterizes their aggregate data well but that does not assume constant absolute or relative risk aversion the basic holt and laury 2002 hl design should become an important tool for the interpretation and design of experiments in which risk attitudes could play a role however their most important result showing the effect of scaling up the stakes of the lottery choice task is confounded by a possible order effect an order effect occurs when prior experience with one task affects behavior in a subsequent task the primary methodological contribution of experiments in economics is to enhance control ideally such control makes the explanatory variables of interest in this case scale orthogonal to other explanatory variables such as order allowing clearer inferences about behavior than one could get from field econometric data we argue that not controlling for order effects results in a misspecification of utility functions that is as important as that of scale the subjects in the hl design were given sequences of three or four tasks as shown in table 1 task 1 involved choices over lotteries with a baseline level of prizes which we will refer to as the 1 scale task 2 involved hypothetical choices over prizes with a scaled up level of prizes either 20 50 or 90 task 3 repeated task 2 but with choices that involved real payoffs task 4 was a return to the baseline task with real 1 prizes in some sessions subjects were not given task 2 or task 3 what could one infer from the comparison of measured risk attitudes in the 1 and 20 tasks in hl unfortunately any observed difference could be due either to the scale of the prizes involved or the task order or some combination of both thus the effect of scale is intrinsically confounded with the possible effect of task order this is a logical flaw in their design which

judging experimental evidence on dynamic inconsistency abstract this article briefly summarizes and judges recent experimental developments exploring the predictions of dynamically inconsistent models an opinion is provided as to how the literature ma

the medium term aftermarket in high tech ipos patterns and implications abstract a number of theoretical models loosely characterized under the rubric of behavioral finance suggest that price convergence to value is far from instantaneous and possibly involves interplay between noise and informed traders these models are motivated by documented anomalous patterns in equity markets and assume some form of psychological bias that affects investor behavior with the benefit of hindsight it seems clear that the technology sector went through a bubble like pattern in the late 1990s and that investor biases if indeed they exist and can be inferred may have been even more pronounced accordingly our study focuses on the medium term aftermarket in high tech us ipos during this period using both ordered logit regression and split population hazard modeling approaches we document momentum and reversal patterns that are consistent with the predictions of some behavioral finance models our findings indicate that momentum variables are important while fundamental variables have at best weak explanatory power

parental preferences and choice of school this paper provides a uk high resolution microeconometric study of parental preferences and the choice process for secondary schools given the particular geographical features of the region first preference almost entirely related to one of two state schools which is a situation that perhaps better reflects the real nature of the options faced by most parents in the uk in contrast to earlier work distance and access considerations were explicitly incorporated in the preference and choice models estimated and found to be a significant influence on parental decisions further significant factors were found dependent upon the parents actual choice of school

choice under uncertainty evidence from ethiopia india and uganda we review experimental evidence collected from risky choice experiments using poor subjects in ethiopia india and uganda using these data we estimate that just over 50 of our sample behaves in accordance with expected utility theory and that the rest subjectively weight probability according to prospect theory our results show that inferences about risk aversion are robust to whichever model we adopt when we estimate each model separately however when we allow both models to explain portions of the data simultaneously we infer risk aversion for subjects behaving according to expected utility theory and risk seeking behaviour for subjects behaving according to prospect theory

decreasing impatience a criterion for non stationary time preference and hyperbolic discounting despite recent interest in hyperbolic discounting there has been little discussion of exactly what property of time preferences is instantiated by hyperbolic or quasi hyperbolic functional forms the paper revives an earlier proposal in prelec 1989 that the key property is prattarrow convexity of the log of the discount function which corresponds to decreasing impatience di at the level of preferences di provides a natural criterion for assessing the severity of departure from stationarity in that greater di is equivalent to more choices of dominated options in two stage decision problems as well as greater convexity of the log of the discount function inefficient choices may arise as intentional precommitments or as unintended reversals of preference by naive agents

what parents want school preferences and school choice we investigate parents preferences for school attributes in a unique data set of survey administrative census and spatial data using a conditional logit incorporating characteristics of households schools and home school distance we show that most families have strong preferences for schools academic performance parents also value schools socio economic composition and distance which may limit the potential of school choice to improve academic standards most of the variation in preferences for school quality across socio economic groups arises from differences in the quality of accessible schools rather than differences in parents preferences although more advantaged parents have stronger preferences for academic performance

discounting by intervals a generalized model of intertemporal choice according to most models of intertemporal choice an agent s discount rate is a function of how far the outcomes are removed from the present and nothing else this view has been challenged by recent studies which show that discount rates tend to be higher the closer the outcomes are to one another subadditive discounting and that this can give rise to intransitive intertemporal choice we develop and test a generalized model of intertemporal choice the discounting by intervals dbi model according to which the discount rate is a function of both how far outcomes are removed from the present and how far the outcomes are removed from one another the model addresses past challenges to other models most of which it includes as special cases as well as the new challenges presented in this paper our studies show that when the interval between outcomes is very short discount rate tends to increase with interval length superadditive discounting in the discussion we place our model and evidence in a broader theoretical context

do lottery payments induce savings behavior evidence from the lab this paper presents the results of a laboratory experiment designed to investigate whether the option of a prize linked savings pls product alters the likelihood that subjects choose to delay payment by comparing pls and standard savings products in a controlled way we nd strong evidence that a pls payment option leads to greater rates of payment deferral than does a straightforward interest payment option of the same expected value the appeal of the pls option is strongest among men and selfreported lottery players we use the results of our experiment to structurally estimate the parameters of the decision problem governing time preference risk aversion and probability weighting we employ the parameter estimates in a series of policy simulations that compare the relative eectiveness of pls products as compared to standard

parent child bargaining parental transfers and the post secondary education decision schooling decisions are often modelled within a unitary preference framework in this article an alternative to the unitary preference model is proposed in which parents and child have conflicting preferences over parental transfers and the level of post secondary schooling and participate in cooperative bargaining as a means of resolving this conflict comparisons of the implications of the bargaining and unitary preference models motivate tests of parental altruism and income pooling to test these hypotheses reduced form transfer and schooling equations are estimated using data from the high school and beyond surveys the evidence suggests that the unitary preference model be rejected

risk preferences are not time preferences risk and time are intertwined the present is known while the future is inherently risky this is problematic when studying time prefer ences since uncontrolled risk can generate apparently present biased behavior we systematically manipulate risk in an intertemporal choice experiment discounted expected utility performs well with risk but when certainty is added common ratio predictions fail sharply the data cannot be explained by prospect theory hyperbolic discounting or preferences for resolution of uncertainty but seem consistent with a direct preference for certainty the data suggest strongly a difference between risk and time preferences jel c91 d81 d91 understanding individual decision making under risk and over time are two foundations of economic analysis 1 in both areas there has been research to suggest that standard models of expected utility eu and exponential discounting are flawed or incomplete regarding time experimental research has uncovered evidence of a present bias or hyperbolic discounting frederick loewenstein and o donoghue 2002 regarding risk there are number of well documented departures from eu such as the allais 1953 common consequence and common ratio paradoxes an organizing principle behind expected utility violations is that they seem to arise as so called boundary effects where certainty and uncertainty are combined camerer 1992 harless and camerer 1994 and starmer 2000 indicate that violations of expected utility are notably less prevalent when all choices are uncertain this observation is especially interesting when considering decisions about risk taking over time in particular certainty and uncertainty are combined in intertemporal decisions the present is known and certain while the future is inherently risky this observation is problematic if one intends to study time preference in isolation from

sequential sales learning and cascades when ipo shares are sold sequentially later potential investors can learn from the purchasing decisions of earlier investors this can lead rapidly to cascades in which subsequent investors optimally ignore their private information and imitate earlier investors although rationing in this situation gives rise to a winner s curse it is irrelevant the model predicts that 1 offerings succeed or fail rapidly 2 demand can be so elastic that even risk neutral issuers underprice to completely avoid failure 3 issuers with good inside information can price their shares so high that they sometimes fail 4 an underwriter may want to reduce the communication among investors by spreading the selling effort over a more segmented market consider a scenario in which an issuer is selling a new security of uncertain value for example an ipo initial public offering of stock or high yield debt through an underwriter the s e c has banned variable price sales while the value of this new security is highly uncertain to individual market participants investors hold perfectly accurate information when aggregated moreover there are many potential investors and a small number of these investors can jointly determine the value of the firm or its project with high precision it would seem that in this scenario underpriced offerings would succeed and overpriced offerings would fail nevertheless this paper shows that if the distribution channels of invest ment banks are limited underpriced offerings can fail and overpriced offer ings can succeed with limited distribution channels it takes the under writer time to approach interested investors therefore later investors can observe how well an offering has sold to date or at least how successful it has sold relative to offerings previously undertaken by this underwriter

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

estimating time preferences from convex budgets experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision making such high rates are often attributed to present biased discounting a well known bias of standard measurements is the assumption of linear consumption utility attempting to correct this bias using measures of risk aversion to identify concavity researchers find reasonable discounting but at the cost of exceptionally high utility function curvature we present a new methodology for identifying time preferences both discounting and curvature from simple allocation decisions we find reasonable levels of both discounting and curvature and surprisingly dynamically consistent time preferences jel c91 d12 d81 understanding and estimating time preferences is obviously of great importance to economists marketers and policy makers consumers decide how much to invest in savings education real estate and life insurance how much to diet exercise and smoke whether to marry when to have children and what to leave in their wills while there has been substantial research estimating time preferences using aggregate consumption data 1 the bulk of the effort has occurred in laboratory environments 2 among the many laboratory techniques employed recent studies have favored multiple price lists mpl with monetary payments 3 with mpls individuals are asked multiple times to choose between smaller payment amounts closer to the present and larger amounts further into the future the interest rate increases monotonically in a price list such that the point where an individual switches from preferring sooner payments to later payments carries interval

time consistency stationarity and time invariance a sequence of experiments documents static and dynamic preference reversals between sooner smaller and later larger rewards when the sooner reward could be immediate the theoretically motivated design permits separate identification of time consistent stationary a ndtime invariant choices at least half of the subjects are time consistent but only three quarters of them exhibit stationary choices about half of subjects with time inconsistent choices have stationary preferences these results chal lenge the view that present bias preferences are the main source of time inconsistent choices the past twenty years have seen a surge of interest in time inconsistent preferences mostly this has been motivated by psychological experiments and introspection that have suggested the existence of present bias a decision maker prefers smaller immediate reward to a larger delayed reward but when she is asked about her preferences between these two alternatives when both are equally shifted into the future her preferences are reversed although there is no inconsistency per se in her answers this behavior has been taken to suggest that when the decision maker will be asked to update her choices in the future she will generally deviate from her ex ante plans our goal in the present study is to perform a dynamic preference reversal experiment as such one is required to extend the standard framework of pref erences over temporal payments to a dated collection of such preferences this extension allows us to formally define three distinct properties stationarity im plies that ranking of temporal payments depends only on the time distance and payment distance between the alternatives time invariance assumes that the decision maker evaluates each temporal payment relative to the evaluation pe

an empirical study on intertemporal decision making under risk this study compares time preference in the cases of certainty and risk we analyze both matching and choice behavior we find that violations of the stationarity axiom are restricted to matching behavior both for certainty and risk we also compare the discounting of certain and risky outcomes as well as the discounting of gains and losses in matching tasks certain outcomes are discounted more than risky ones we could not confirm these results in a choice task gains and losses are not found to be discounted at different rates

the personal discount rate evidence from military downsizing programs the military drawdown program of the early 1990s provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums the program offered over 65 000 separatees the choice between an annuity and a lump sum payment despite break even discount rates exceeding 17 percent most of the separatees selected the lump sum saving taxpayers 1 7 billion in separation costs estimates of discount rates range from 0 to over 30 percent and vary with education age race sex number of dependents ability test score and the size of payment

cautionary notes on the use of field experiments to address policy issues field experiments are popular again in policy circles there are various types of field experi ments with complementary strengths and weaknesses for different policy questions there is also a lot of needless hype about what field experiments can do more balance in our use of field experiments is called for