measuring skill and chance in games abstract online and offline gaming has become a multi billion dollar industry yet games of chance in contrast to games of skill are prohibited or tightly regulated in many jurisdictions thus the question whether a game predominantly depends on skill or chance has important legal and regulatory implications in this paper we suggest a new empirical criterion for distinguishing games of skill from games of chance all players are ranked according to a best fit elo algorithm the wider the distribution of player ratings are in a game the more important is the role of skill most importantly we provide a new benchmark 50 chess that allows to decide whether games predominantly depend on chance as this criterion is often used by courts we apply the method to large datasets of various games e g chess poker backgammon our findings indicate that most popular online games including poker are below the threshold of 50 skill and thus depend predominantly on chance in fact poker contains about as much skill as chess when 75 of the chess results are replaced by a coin flip

survival of overconfidence in currency markets this paper tests the influential hypothesis that irrational traders will be driven out of financial markets by trading losses the paper s main finding is that overconfident currency dealers are not driven out of the market dealers with extensive experience are neither more nor less overconfident than their junior colleagues we set the stage for this investigation by providing evidence that currency dealers display two forms of overconfidence they underestimate uncertainty and they overestimate their professional success this is notable because one might have expected the opposite currency dealers face strong incentives for accuracy they have access to comprehensive information and they have extensive experience

the role of the desire for union status in the decision to enter local government job queues the us evidence following a two stage bivariate probit approach this study estimates local government and union job queues in a simultaneous equations framework by relaxing the restrictive assumption of independence between the worker s queuing and the employer s hiring decisions it overcomes a major limitation of most of the earlier job queue estimates the results indicate that the worker s queuing decision for local government jobs in the united states is determined partly by the desire for unionized employment the converse however is not true seniority with the current employer emerges as a significant determinant of both workers queuing and employers hiring decisions furthermore local governments act as model employers by being more likely to hire minorities and females from the pool of job applicants

modeling exchange rate passthrough after large devaluations large devaluations are generally associated with large declines in real exchange rates burstein eichenbaum and rebelo 2005 argue that the primary force causing these declines is often the slow adjustment in the price of nontradable goods and services we develop a model which embodies two complementary forces that account for the large declines in the real exchange rate that occur in the aftermath of large devaluations the first force is sticky nontradable goods prices instead of simply assuming that nontradable goods prices are sticky we develop conditions under which this phenomenon can emerge as an equilibrium outcome the second force is the impact of real shocks that often accompany large devaluations these real shocks lead to a decline in the price of nontradable goods relative to traded goods we argue that sticky nontradable goods prices generally play an important role in explaining post devaluation movements in real exchange rates however there are cases in which sticky nontradable goods prices are not sustainable as an equilibrium phenomenon in these cases real shocks are the primary driver of real exchange rate movements j e l classification f31

the determinants of australian trade union membership summary this paper investigates the determinants of trade union membership in australia using the engle and granger 1987 theory of co integrated economic variables applying the theory of co integration yields a model of union membership which can be interpreted as distinguishing between long run and business cycle determinants of union membership the principal long run determinant of union membership is found to be the level of employment disaggregated by industry classification business cycle variables the real wage and the change in unemployment are also shown to influence movements in union density these findings are consistent with recent studies which have attributed the decline in union membership in australia since the early 1980s to the changing composition of employment and movements in the rate of unemployment

boys will still be boys gender differences in trading activity are not due to differences in over confidence abstract the fact that men trade more than women in financial markets has been attributed to men s overconfidence however evidence supporting this view is only indirect we directly test this conjecture experimentally by measuring confidence using monetary incentives before participants trade in a simulated market we find that men are more confident than women in our trading task men also trade more and they hold larger and less diversified portfolios than women however we do not find that differences in confidence explain any portion of the gender gap in trading activity we explore alternative candidate channels such as risk aversion financial literacy or competitiveness but find that these factors are also unlikely to play a role

random walk expectations and the forward discount puzzle nber working paper seriesrandom walk expectations and the forward discount puzzlephilippe bacchettaeric van wincoopworking paper 13205http www nber org papers w13205national bureau of economic research1050 massachusetts avenuecambridge ma 02138june 2007we are grateful to adriano rampini for comments the paper was written while van wincoop visitedthe hong kong institute for monetary research van wincoop acknowledges financial support fromthe institute bacchetta acknowledges financial support by the national centre of competence in research financial valuation and risk management nccr finrisk the views expressed herein are thoseof the author s and do not necessarily reflect the views of the national bureau of economic research 2007 by philippe bacchetta and eric van wincoop all rights reserved short sections of text notto exceed two paragraphs may be quoted without explicit permission provided that full credit including notice is given to the source

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

the arms trade the arms trade winners and losers the arms trade is highly controversial and raises difficult policy issues the controversies tend to concentrate on the moral military and political dimensions of arms exports decisions quite a lot of light can be shed on this murky market by asking basic economic questions and using standard economic models we begin with a structured economic description of the evolution of the international arms market in terms of the factors that influence demand and supply and thus prices and quantities then we review the policy issues faced by eu members in particular whether a common control regime is needed to harmonize their regulation of arms exports to address these policy issues we present some models of the market that we have developed and examine their implications for the interesting interactions that characterize the trade paul levine and ron smith

federal and union job queues further evidence from the us labour market recent research on union differentials suggests that although the premium to unionization is higher in the private sector it can hardly be ignored in the federal sector consequently the nature and length of the federal queue may differ between union and non union sectors similarly the union queue may not necessarily be homogeneous between federal and private sectors we estimate separate queues for federal union federal non union and private union jobs from the same sample this avoids the problem of simultaneity between the federal queue and the union queue in addition it explores several important differences that exist between these queues

evaluating the evidence on union employment and wages using current population survey data for the years 1973 86 this study tests the hypothesis that the steep decline of union employment shares since 1973 is related to increases in union wages relative to nonunion wages the authors show that although the aggregate union wage premium has changed little since 1973 some industry specific premiums have risen substantially and the industries with the rising premiums are those experiencing declines in union employment shares the increase in the premium explains from 21 to 64 of the decline in union shares depending on the equation specification the paper also presents a detailed set of union wage premiums and employment shares for the sample period

predictability in financial markets what do survey expectations tell us abstract there is widespread evidence of excess return predictability in financial markets for the foreign exchange market a number of studies have documented that the predictability of excess returns is closely related to the predictability of expectational errors of excess returns in this paper we investigate the link between the predictability of excess returns and expectational errors in a much broader set of financial markets using data on survey expectations of market participants in the stock market the foreign exchange market the bond market and money markets in various countries the results are striking first in markets where there is significant excess return predictability expectational errors of excess returns are predictable as well with the same sign and often even with similar magnitude this is the case for foreign exchange stock and bond markets second in the only market where excess returns are generally not predictable the money market expectational errors are not predictable either these findings suggest that an explanation for the predictability of excess returns must be closely linked to an explanation for the predictability of expectational errors

exchange rate puzzles and distorted beliefs abstract we propose a new explanation for the foreign exchange forward premium and delayed overshooting puzzles we show that both puzzles arise from a systematic distortion in investors beliefs about the interest rate process accordingly the forward premium is always a biased predictor of future depreciation the bias can be so severe as to lead to negative coefficients in the fama regression delayed overshooting may or may not occur depending upon the persistence of interest rate innovations and the degree of misperception we document empirically the extent of this distortion using survey data for g 7 countries against the u s and find that it is strong enough to account for these irregularities

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

trading mechanisms and stock returns an empirical investigation this paper examines the effects of the mechanism by which securities are traded on their price behavior we compare the behavior of open to open and close to close returns on nyse stocks given the differences in execution methods applied in the opening and closing transactions opening returns are found to exhibit greater dispersion greater deviations from normality and a more negative and significant autocorrelation pattern than closing returns we study the effects of the bid ask spread and the price adjustment process on the estimated return variances and covariances and discuss the associated biases we conclude that the trading mechanism has a significant effect on stock price behavior

monetary policy and exchange rate volatility in a small open economy we lay out a small open economy version of the calvo sticky price model and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap we use the resulting framework to analyse the macroeconomic implications of three alternative rulebased policy regimes for the small open economy domestic inflation and cpi based taylor rules and an exchange rate peg we show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail we also discuss a special case for which domestic inflation targeting constitutes the optimal policy and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules

forward and spot exchange rates in a multi currency world separate literatures study violations of uncovered interest parity uip using regression based and portfolio based methods we propose a decomposition of these violations into a cross currency a between time and currency and a cross time component that allows us to analytically relate regression based and portfolio based facts and to estimate the joint restrictions they put on models of currency returns subject to standard assumptions on investors information sets we find that the forward premium puzzle fpp and the dollar trade anomaly are intimately linked both are driven almost exclusively by the cross time component by contrast the carry trade anomaly is driven largely by cross sectional violations of uip the simplest model that the data do not reject features a cross sectional asymmetry that makes some currencies pay permanently higher expected returns than others and larger time series variation in expected returns on the u s dollar than on other currencies importantly conventional estimates of the fpp are not directly informative about expected returns because they do not correct for uncertainty about future mean interest rates once we correct for this uncertainty we never reject the null that investors expect high interest rate currencies to depreciate not appreciate

the effect of the union wage differential on management opposition and union organizing success that large union wage differentials increase organization is incorrect for the united states today it is incorrect because organization is the joint decision of workers and management not a worker s decision while potential wage increases are a plus to workers they reduce profits and thus are a minus to management in an institutional setting in which management allocates significant resources to convince workers to vote against unions it is erroneous to analyze the effect of the union wage differential on organizing solely from the workers side just as it is erroneous to analyze any economic outcome solely in terms of one blade of the market scissors my claim is threefold

progress in behavioral game theory i s game theory meant to describe actual choices by people and institutions or not it is remarkable how much game theory has been done while largely ignoring this question the seminal book by von neumann and morgenstern the theory of games and economic behavior was clearly about how rational players would play against others they knew were rational in more recent work game theorists are not always explicit about what they aim to describe or advise at one extreme highly mathematical analyses have proposed rationality requirements that people and firms are probably not smart enough to satisfy in everyday decisions at the other extreme adaptive and evolutionary approaches use very simple modelsmostly developed to describe nonhuman animals in which players may not realize they are playing a game at all when game theory does aim to describe behavior it often proceeds with a disturbingly low ratio of careful observation to theorizing this paper describes an approach called behavioral game theory which aims to describe actual behavior is driven by empirical observation mostly experiments and charts a middle course between over rational equilibrium analyses and under rational adaptive analyses the recipe for behavioral game theory i will describe has three steps start with a game or naturally occurring situation in which standard game theory makes a bold prediction based on one or two crucial principles if behavior differs from interested readers familiar with game theory should read crawford 1997 whose approach is more eclectic than mine he concludes p 236 that most strategic behavior can be understood via a synthesis that combines elements from each of the leading theoretical frameworks traditional game theory evolutionary game theory and adaptive learning with a modicum of empirical information about behavior behavioral game theory adds psychological interpretations to this synthesis

union organizing costs and benefits this paper examines the costs and benefits to current union members in manufacturing of programs to organize the unorganized the marginal cost of organizing an additional employee in constant dollars is estimated for a sample of unions between 1964 and 1977 the primary benefit of organizing that is quantifiable is the extent to which the maintenance or extension of union coverage permits the maintenance of or increase in the union wage estimates of this benefit are derived from previous econometric research linking the union wage to the percentage of the industry organized this single benefit is found to be larger than the estimated marginal cost of extending union coverage in 19 of 20 manufacturing industries

what happened to long term employment the role of worker power and environmental turbulence in explaining declines in worker tenure recent declines in the average length of time that u s workers spend with a given employer represent an important change in the nature of the employment relationship yet it is one whose causes are poorly understood i explore those causes using current population survey data on the tenure of men aged 30 65 from the years 1979 2008 i argue that long term employment relationships primarily occur when workers pressure employers to close off employment from market competition reducing the attractiveness of external mobility relative to internal opportunities and increasing employment security i then explore how two changes in organizations environments a decline in union strength and increased turbulence from changes in technology and globalization might have affected workers ability to secure such closed employment relationships over the last 30 years my results support the argument that declines in tenure reflect the reduced power of workers to secure closed employment relationships recent declines in tenure have been concentrated in large organizations and many of those declines are explained by controlling for the changing levels of industry unionization i find little evidence that foreign competition or technological change affected mobility the results are robust to measures of changing industry growth rates and within industry reorganization supplementary analyses suggest that layoffs are associated with different industry pressures than tenure and that voluntary mobility may have played an important role in declines in tenure

an empirical evaluation of the overconfidence hypothesis abstract recently several behavioral finance models based on the overconfidence hypothesis have been proposed to explain anomalous findings including a short term continuation momentum and a long term reversal in stock returns we characterize the overconfidence hypothesis by the following four testable implications first if investors are overconfident they overreact to private information and underreact to public information second market gains make overconfident investors trade more aggressively in subsequent periods third excessive trading of overconfident investors in securities markets contributes to the observed excessive volatility fourth overconfident investors underestimate risk and trade more in riskier securities to document the presence of overconfidence in financial markets we empirically evaluate these four hypotheses using aggregate data overall we find empirical evidence in support of the four hypotheses

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

money demand the cagan model and the inflation tax some latin american evidence this paper examines the demand for money under conditions of very high inflation in argentina bolivia brazil chi le and peru during the 1970s and 1980s the authors test whether the monetary and inflationary experiences of these countries can be adequately characterized by the cagan 1956 model using an econometric procedure that is not reliant on any particular assumpti on concerning expectations formation except that forecasting errors are stationary the authors also examine the importance of foreign asset substitution in domestic portfolios and the hypothesis that monetary policy was tantamount to maximization of the inflation tax revenue before testing the rational expectations hypothesis copyright 1993 by mit press

price stability in open economies this paper studies the conditions under which price stability is the optimal policy in a two country open economy model with imperfect competition and price stickiness special conditions on the levels of country specific distortionary taxation and the intratemporal and intertemporal elasticities of substitution need to be satisfied these restrictions apply to both cooperative and non cooperative settings most importantly we show that cooperative and non cooperative solutions do not coincide despite market completeness and producer currency pricing in this framework our analysis suggests a role for international policy coordination

optimal monetary policy in open versus closed economies an integrated approach in clarida et al 1999 hereafter cgg we presented a normative analysis of monetary policy within a simple optimization based closedeconomy framework we derived the optimal policy rule and among other things characterized the gains from commitment also we made precise the implications for the kind of instrument feedback rule that a central bank should follow in practice in this paper we show how our analysis extends to the case of a small open economy openness complicates the problem of monetary management to the extent the central bank must take into account the impact of the exchange rate on real activity and inflation how to factor the exchange rate into the overall design of monetary policy accordingly becomes a central consideration here we show that under certain conditions the monetary policy design problem for the small open economy is isomorphic to the problem of the closed economy that we considered earlier hence all our qualitative results for the closed economy carry over to this case openness does affect the parameters of the model suggesting quantitative implications though the general form of the optimal interest rate feedback rule remains the same as in the closedeconomy case for example how aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness in addition openness gives rise to an important distinction between domestic inflation and consumer price inflation as defined by the cpi to the extent that there is perfect exchange rate pass through we find that the central bank should target domestic inflation and allow the exchange rate to float despite the impact of the resulting exchangerate variability on the cpi kosuki aoki 1999 gali and tommaso monacelli 2000

behavioral uncertainty and the dynamics of traders confidence in their price forecasts by how much does the presence of behavioral uncertainty in an experimental asset market reduce subjects confidence in their price forecasts an incentivized interval forecast elicitation method is employed to answer this question each market consists of six traders and the value of dividends is known two treatments are considered six human traders 6h and one human interacting with five computer traders whose behavior is known 1h5c we find that while the deviation of the initial price forecasts from fundamental value is smaller in the 1h5c treatment than in the 6h treatment albeit not statistically significantly the average confidence regarding the forecasts is not we further analyze the relationships between subjects confidence in their forecasts and their trading behavior as well as their trading performance in the 6h treatment while subjects high confidence in their short term forecasts shows a negative correlation with their trading performance high confidence in their long term forecasts shows a positive correlation with trading performance

investor attention overconfidence and category learning abstract motivated by psychological evidence that attention is a scarce cognitive resource we model investors attention allocation in learning and study the effects of this on asset price dynamics we show that limited investor attention leads to category learning behavior i e investors tend to process more market and sector wide information than firm specific information this endogenous structure of information when combined with investor overconfidence generates important features observed in return comovement that are otherwise difficult to explain with standard rational expectations models our model also demonstrates new cross sectional implications for return predictability

new evidence on the forward premium puzzle the forward premium anomaly exchange rate changes are negatively related to interest rate differentials is one of the most robust puzzles in financial economics we recast the underlying parity relation in terms of lagged forward interest rate differentials documenting a reversal of the anomalous sign on the coefficient in the traditional specification we show that this novel evidence is consistent with recent empirical models of exchange rates that imply exchange rate changes depend on two key variables the interest rate differential and the magnitude of the deviation of the current exchange rate from that implied by purchasing power parity

overconfidence as a social bias experimental evidence abstract the overconfidence bias is discussed extensively in economic studies yet fails to hold experimentally once monetary incentives and feedback are implemented we consider overconfidence as a social bias for a simple real effort task we show that individually economic conditions effectively prevent overconfidence by contrast the introduction of a very basic purely observational social setting fosters overconfident self assessments additionally observing others actions effectively eliminates underconfidence compared to the individual setting

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

some evidence on demand fluctuations and the increased stability of the post war american economy this paper investigates the implications of a sticky wage contracting model that can explain both the decline in wage and price flexibility and the increased stability of the post war american economy the reduction in the size of demand shocks in the post war period has increased agents incentives to write longer contracts though longer contracts have rendered real activity more responsive to demand shocks in the post war period the reduction in the size of these shocks has dominated the increase in the size of response to a particular shock overall real activity has become more stable in the post war period as predicted by theory

overconfidence in forecasts of own performance an experimental study systematic overconfidence by individuals regarding their abilities and prospects could have important economic consequences but overconfidence has received little direct testing within economics we use experiments to test for overconfidence in people s forecasts of their absolute or relative performance in two unfamiliar tasks given their chosen effort participants have incentives to forecast accurately with opportunities for feedback learning and revision forecasts are evaluated at aggregate and individual levels we find zero mean error or underconfidence far more prevalent than overconfidence underconfidence is greatest in forecasts of absolute rather than relative performance and among those using greater effort quantity or quality

rational expectations and the aggregation of diverse information in laboratory security markets the idea that markets might aggregate and disseminate information and also resolve conflicts is central to the literature on decentralization hurwicz 1972 and rational expectations lucas 1972 we report on three series of experiments all of which were predicted to have performed identically by the theory of rational expectations in two of the three series one in which participants trade a complete set of arrow debreu securities and a second in which all participants have identical preferences double auction trading leads to efficient aggregation of diverse information and rational expectations equilibrium failure of the third series to exhibit such convergence demonstrates the importance of market institutions and trading instruments in achievement of equilibrium

extreme returns the case of currencies abstract financial market crashes can occur even in the absence of news this paper highlights four properties of price contingent trading that increase the frequency of such events price contingent trading is common across financial market since it includes algorithmic trading technical trading and dynamic option hedging the four properties we consider are 1 high kurtosis in the distribution of order sizes 2 clustering of trades within the day 3 clustering of trades at certain prices and 4 feedback between trading and returns the paper estimates the relative importance of these factors using data from the foreign exchange market calibrated simulations indicate that interactions among these factors are at least as important as any single one among individual factors the orders size distribution and feedback effects have the strongest influence overall price contingent trading could account for half of realized excess kurtosis the paper suggests that extreme returns unaccompanied by news are statistically inevitable in the presence of price contingent trading

the politics of union decline the contingent determinants of union recognition elections and victories despite the close political regulation of union recognition disputes sociologists have paid little attention to recent political determinants of success in these contests a state centered political opportunity approach suggests that if conservative political officials can reduce the number of union recognition elections union organization will be blocked partly because many labor scholars claim there was a postwar departure in labor movement fortunes we attempt to detect and model a contingent break in the relationship between republican control of the presidency and these elections using interactive specifications our findings show that shortly after the conservative anti union reagan administration took office recognition elections and union victories in these elections fell sharply with macroeconomic and other determinants held constant other political conditions with explanatory power include congressional oversight committee ideology and conservative appointments to the key regulatory age

another look at long run money demand abstract this paper investigates the long run demand for m1 in the postwar united states previous studies based on data ending in the late 1980s are inconclusive about the parameters of postwar money demand this paper obtains precise estimates of these parameters by extending the data through 1996 the income elasticity of money demand is approximately 0 5 and the interest semi elasticity is approximately 0 05 these parameters are significantly smaller in absolute value than the corresponding parameters for the prewar period a caveat is that the analysis assumes there is no trend in money demand resulting from technological change

judgemental overconfidence self monitoring and trading performance in an experimental financial market we measure the degree of overconfidence in judgment in the form of miscalibration i e the tendency to overestimate the precision of one s information and self monitoring a form of attentiveness to social cues of 245 participants and also observe their behaviour in an experimental financial market under asymmetric information miscalibrated traders underestimating the conditional uncertainty about the asset value are expected to be especially vulnerable to the winner s curse high self monitors are expected to behave strategically and achieve superior results our empirical results show that miscalibration reduces and self monitoring enhances trading performance the effect of the psychological variables is strong for men but non existent for women

sizing up the peace dividend economic growth and military spending in the united states 1948 1996 with cold war expenditure no longer needed our gigantic government expenditures abroad could be reduced and our international deficit would probably disappear almost overnight with the dollar no longer overvalued militant expansion of monetary and credit policy could stimulate capital formation or investment to utilize the resources released from armament production america s potential and actual growth rate far from depending upon war preparations would be markedly increased by an end to the cold war paul samuelson economics an introductory analysis

the dynamics of overconfidence evidence from stock market forecasters as a group market forecasters are overconfident in the sense that they are miscalibrated while overconfidence is persistent respondents do exhibit some degree of rational learning in that they widen confidence intervals after failure as much as they narrow them after success market experience exacerbates overconfidence primarily through knowledge deterioration

accounting for the decline in union membership 1950 1980 this study analyzes the components of the post 1950 trends in the share of the private work force organized by unions which rose from 1950 to 1954 and then fell steadily to 1980 the authors decompose the sources of growth and decline into changes in organizing activity success in certification elections losses from decertification elections and net growth due to economic causes the last a residual measure designed to capture the effect of factors such as plant closings layoffs and new hires they find that all factors except decertifications accounted for a substantial part of the decline since 1954 when the level of aggregate economic activity is held constant loss of membership due to other economic causes shows no downward trend a finding that challenges the view that the decline in the unionized share of the work force has been due primarily to a secular decline in employment in the strongly unionized industries

an alternate method of estimating the cagan money demand function in hyperinflation under rational expectations abstract an alternate method of estimating the cagan money demand function under rational expectations is presented the technique utilizes the side assumptions that 1 accurate contemporaneous information on the price level and money stock is available to individuals and 2 unobservable noise in the portfolio balance schedule is neglible the procedure has three main virtues first it is implemented without imposing restrictions on the money supply process second the procedure is extremely simple and economical third it admits a simple test of a restriction implied by the cagan money demand function results are related to issues in recent hyperinflation studies

individualism and stock price crash risk employing a sample of 26 473 firms across 42 countries from 1990 to 2013 we find that firms located in countries with higher individualism have higher stock price crash risk furthermore individualism can be transmitted by foreign investors from overseas markets to influence local firms crash risk and can exacerbate the impact of firm risk taking and earnings management on crash risk moreover the positive relation between individualism and crash risk is amplified during the global financial crisis and attenuated by enhanced country level financial information transparency and the adoption of international financial reporting standards

shifts in monetary policy and exchange rate dynamics is dornbusch s overshooting hypothesis intact after all abstract how do nominal exchange rates adjust after surprise contractions in monetary policy while the seminal contribution by dornbusch provides concise predictions exchange rates appreciate i e overshoot on impact before depreciating gradually empirical support for his hypothesis is at best mixed i argue that the failure to discover overshooting may result from assumptions researchers have imposed to recover structural vars specifically simultaneous feedback effects between interest rates and exchange rates which are inherently forward looking variables are often excluded or modeled alongside with strong restrictions in this paper i identify u s monetary policy shocks using surprises in federal funds futures around policy announcements as external instruments which recent literature has established to represent the appropriate laboratory in settings encompassing macroeconomic and financial variables resulting adjustments of the dollar conditional on shifts in policy generally align with dornbusch s predictions during the post bretton woods era including volcker s tenure as fed chair

bargaining laws as a cause and consequence of the growth of teacher unionism this study analyzes state level data for 1959 78 to determine whether the rapid growth of teacher unionism during those years was primarily a result or a cause of the public sector bargaining laws adopted during the same period the author finds contrary to the view of some scholars that the enactment of laws requiring public sector employers to bargain with majority representatives of their employees was the single most important cause of the growth in the proportion of teachers covered by union contracts although the growth in teacher unionism in turn encouraged the adoption of some new or stronger bargaining laws this effect was relatively weak more important predictors of new bargaining laws included the extent of political patronage in a state and the bargaining laws adopted by neighboring states

the influence of management consultants on the outcome of union certification elections this study examines the effect of management consultants on the probability of union victory in representation elections an analysis of data on 130 elections in retail grocery outlets shows that c

is there momentum or reversal in weekly currency returns abstract we investigate whether momentum or reversal is the dominant phenomenon in short horizon one to four week foreign exchange rate returns we find based on a broad sample of 63 emerging and developed market currencies evidence of momentum rather than reversal momentum strategy returns are as large as 8 p a the short term momentum effect appears to be robust returns are larger in the earlier sub period but still exist in the more recent period the strategies are also profitable when the usd is appreciating or depreciating but they perform better in business cycle expansions

public and private sector wages interactions in a general equilibrium model it is common wisdom that public sector wages are not determined in the same way as private sector wages at the same time the empirical evidence available for oecd countries finds a strong positive correlation between public and private sector wages in this paper we develop a model that is consistent with a political economy view of the determination of public sector wages and employment while being consistent with the said empirical evidence public finance constraints are crucial in booms governments expand employment and wages while in downturns lack of tax revenues forces the government to cut back the wage bill

irrationality and beliefs in a laboratory asset market is it me or is it you abstract this paper reports on an experiment designed to examine individual and market outcomes with a mixture of rational and non rational traders using values elicited via auctions we measure a specific form of irrationality the tendency to overweight high payoff low probability events or probability judgment error subjects are classified by their tendency to exhibit errors as well as their beliefs regarding whether others will make errors subjects then participate in a series of double auction markets the results indicate that both probability judgment error and beliefs about other subjects susceptibility to probability judgment error have significant impact on individual and market outcomes

government finance in the wake of currency crises we address three questions i can classical models be reconciled with the fact that many crises are marked by high rates of depreciation and small increases in seignorage revenue ii what are the implications of different financing methods for post crisis rates of inflation and depreciation iii how do governments pay for the fiscal costs associated with currency crises to study these questions we use a general equilibrium model in which prospective government deficits trigger a currency crisis we then use our model in conjunction with fiscal data to interpret government financing in the wake of three recent currency crises korea 1997 mexico 1994 and turkey 2001

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

the effects of corporate strategy and workplace innovations on union representation this paper explores the decline of union membership within partially organized firms using data from two conference board surveys of labor relations practices 1977 and 1983 the authors test a series of propositions concerning the effects of corporate industrial relations values and strategies and workplace innovations on union representation and membership the results show that whereas the average firm reduced the number of workers represented by unions by approximately 977 from 1977 to 1983 firms that placed a high priority on union avoidance reduced union representation by an average of 2 647 workers over the same period moreover the typical firm that emphasized union avoidance reduced the probability that its new facilities would be organized from approximately 15 percent to less than 1 percent

the effect of unions on wage inequality in the u s labor market this study uses current population survey micro data for 1973 74 and 1993 to evaluate the effect of changing union membership on trends in male and female wage inequality unionization rates of men fell between the two sample periods with bigger declines among lower skill groups these trends account for 15 20 of the rise in male wage inequality union membership rates of low wage women also declined while unionization increased among higher wage women on balance shifting unionization accounts for very little of the rise in female wage inequality economy wide trends in unionization mask a sharp divergence between the private sector where unionism was declining and the public sector where it was rising comparisons across sectors suggest that unionization substantially slowed the growth in wage inequality in the public sector

a note on the severity of the decline in union organizing activity using data on representation elections conducted by the national labor relations board from 1975 to 1987 the authors examine the extent of the recent decline in union organizing activity an analysis of elections for selected unions and in major industry categories shows no widespread recovery from the sharp drop in organizing that occurred from 1981 to 1982 although union success rates in new units have been fairly constant the low number of new members recruited through elections points to a continuation of the downward trend in union density

union suppression and certification success over the past decade a number of provinces have abandoned the long standing canadian tradition of automatic certification of unions based on card signing and instead opted for mandatory representation voting this trend however has developed with little understanding of the effectiveness of management opposition within a voting regime in this paper the impact of union suppression on union organizing success within the voting regime of british columbia is examined we find that union suppression tactics were highly effective with estimates rivalling those found in the united states moreover results from instrumental variable models suggest that ols estimates may seriously underestimate the true impact of suppression effort de suppression du syndicat et succes dans le processus de certification au cours de la derniere decennie un certain nombre de provinces canadiennes ont abandonne la pratique traditionnelle de certification automatique des syndicats sur la base des signatures de cartes d adhesion au syndicat et ont choisi de reclamer un scrutin pour determiner le support des membres potentiels on ne comprend pas bien l efficacite de l action d opposition des patrons au syndicat dans ce regime de scrutin ce memoire examine l impact des efforts de suppression des syndicats sur les succes des syndicats dans leurs efforts d organisation dans le cadre du regime de scrutin en colombie britannique on decouvre que ces tactiques ont ete tres efficaces tout autant qu aux etats unis de plus les resultats obtenus a l aide de modeles de variables instrumentales montrent que ceux qu on obtient a l aide de la methode des moindres carres ordinaires peuvent sous evaluer l impact des tactiques de suppression de maniere significative

worker replacement costs and unionization origins of the u s labor movement the embattled state of u s labor has generated a voluminous body of research on the processes of deunionization contributing to its decline revisiting the less researched topic of unionization this study explores the social conditions facilitating union growth during the labor movement s formative years focusing on the first decade of the twentieth century in many respects for labor a period not unlike the present i seek to explain the pattern of organizing success and failure across industries and occupations i find that the most organized settings occurred where workers had greater disruptive capacities due to the high cost of being replaced during work stoppages the highest replacement costs were associated with three conditions scarcity of skilled labor geographically isolated worksites that raised the cost of importing strikebreakers and time sensitive tasks that rendered replacement workers economically impractical workplaces that had at least one of these conditions formed the backbone o

wal mart innovation and productivity a viewpoint abstract technology effects business process development and productivity growth are considered in the context of a single company wal mart the starting point is the 2001 mckinsey global institute report which finds that over 1995 2000 a quarter of u s productivity growth is attributable to the retail industry and almost a sixth of that is attributable to wal mart wal mart is interesting as well because of its rapid growth in canada this is now canada s largest private sector employer we also consider other evidence relevant to public policy formation concerning wal mart and conclude with a discussion of options for partially filling important data gaps

british unions dissolution or resurgence two employees in five belong to a union in great britain this is a higher density figure than those of our main ec partners but it masks the longest sustained period of membership loss ever experienced union responses to the loss of a third of their members are examined mergers among unions will influence union organization and structure but will not affect total membership much it is emphasized that their interaction with employers is of paramount importance in determining unions future their dealings with present non union members are of secondary importance the state can play a key role too further attacks on collectivism point to decay but encouragement of collective bargaining by a future government would lead to a resurgence in union fortunes copyright 1991 by oxford university press

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

portfolio choice and risk attitudes an experiment i introduction suppose an investor is faced with a decision concerning how to allocate financial resources between a risky lottery asset with a higher expected return and an asset with a fixed and guaranteed lower return is the choice of portfolio independent of preferences outside the standard neoclassical model in experiments with financial incentives we study how portfolio choice depends on three well documented behavioral phenomena ambiguity aversion the illusion of control and myopic loss aversion we also investigate whether participants are willing to explicitly pay a small sum of money to indulge such preferences pay for more perceived control less ambiguity or more frequent opportunities to change the portfolio based on feedback about its performance while standard finance theory presumes that investors successfully identify and process information relevant to reaching optimal decisions in recent years a body of empirical evidence suggests that there are systematic departures from this behavior behavioral finance is concerned with psychological influences in financial decision making and markets investors make decisions while trying to stay afloat in a sea of uncertainty when predictability is low people may be prone to unjustified beliefs that may survive and even flourish in such an environment 1 people may resort to rules of thumb on a conscious or subconscious level to the extent that psychological influences are present it is economically important to consider which of these actually affect risk attitudes and portfolio choice a key issue is whether any such influences disappear when monetary incentives are present we pursue a systematic experimental comparison of three of the most prominent behavioral phenomena documented in the literature the illusion of control langer 1975 is concerned with greater confidence in one s predictive ability or in a favorable outcome when one has a higher degree of personal involvement even when one s involvement is not actually relevant ambiguity aversion ellsberg 1961 is the desire to avoid unclear circumstances even when this will not increase the expected utility myopic loss aversion benartzi and thaler 1995 combines loss aversion kahneman and tversky 1979 tversky and kahneman 1992 and a tendency to evaluate outcomes frequently this combination leads investors to be more willing to invest a greater proportion of their portfolio in risky assets if they evaluate their investments less frequently we show that these phenomena are present with monetary incentives and also investigate whether people are willing to pay money to accommodate such preferences or whether they are closer to the rational model when incentives are present with the procedure we chose the willingness to actually pa for such preferences depends on the preference the great majority of investors pay for less ambiguity or more frequent feedback investment opportunities but fewer than 10 pay to roll a determinative die themselves 2 we then examine how the preferences between lotteries in the different treatments affect portfolio choice we have participants allocate their investment capital between an asset with a sure return and a risky asset with a higher expected rate of return in fact there is very little variation in investment behavior across any of the illusion of control or ambiguity aversion treatments in contrast the results found in previous experimental studies of myopic loss aversion suggest that participants invest less in their preferred option the main conclusion we draw from these findings is that the relation between which procedure or lottery people prefer and how much they are willing to actually invest in this lottery is not trivial at all people are generally unwilling to pay even small amounts of money to indulge the illusion of control and it does not influence their portfolio choice people are generally willing to pay money for less ambiguity but having less ambiguity does not influence their portfolio choice finally in some cases people are willing to pay money for more frequent feedback and opportunities to change their portfolio but again previous studies have shown that people invest less with this additional information and greater flexibility

confidence and decision making in experimental asset markets abstract this paper examines how traders confidence and market confidence affect outcomes in an experimental asset market with known fundamental values in this type of market prices usually present large deviations from the fundamental value in other words bubbles are known to occur we measure beliefs by asking participants to forecast the one period ahead price as a discrete probability mass distribution we define confidence as the inverse of the dispersion of beliefs for each trader and also create a market wide measure of this to measure agreement across traders we find that confidence affects price formation and is also important in explaining the dynamics and size of the bubble moreover as traders are successful they become increasingly certain of their beliefs even if these beliefs are on non fundamental values thus increasing the likelihood of price bubbles

the time variation of risk and return in foreign exchange markets a general equilibrium perspective this article successively introduces variable velocity durability and habit persistence in a standard two country general equilibrium model and explores their effects on the variability of exchange rate changes forward premiums and the foreign exchange risk premium a new feature of the model is that agents make decisions at a weekly frequency and face conditionally heteroskedastic shocks nevertheless even the most complex model fails to deliver sufficiently variable risk premiums without causing forward premiums and exchange rates to be excessively variable unlike previous models the model can roughly match the persistence of forward premiums article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

patterns in exchange rate forecasts for twenty five currencies the properties of exchange rate forecasts are investigated with a data set encompassing a broad cross section of currencies over the entire sample expectations appear to be biased this result is robust to the possibility of random measurement error in the survey measures there appear to be statistically significant differences in the degree of bias in subgroupings of the data the bias is lower for the high inflation countries the bias is greater for the major currencies studied in earlier papers and the bias is also greater for the ems currencies copyright 1994 by ohio state university press

contraction and expansion the divergence of private sector and public sector unionism in the united states the institutional structure of the american labor market changed remarkably from the 1950s and 1960s to the 1980s in the 50s and 60s trade unions seemed permanently established in the private sector of the economy a third of nonagricultur al wage and salary workers and over half of blue collar workers were union members hundreds of thousands of workers voted annually in national labor relations board nlrb representation elections to join unions most large firms sought stable collective bargaining relations with their unions by contrast in the public sector only 10 12 percent of workers were union members fewer were covered by collective bargaining contracts and most experts regarded public employees as intrinsically nonorganizable according to afl cio president george meany it was impossible to bargain collectively with the government kramer 1962 p 14 the massive contraction of unionism in the private sector and expansion in the public sector in the 1970s and 1980s see exhibit 1 has produced an utterly different situation today in the private sector the proportion of wage and salary workers in unions plummeted to 14 percent in 1986 a level comparable to that in the great depression only a minuscule number of workers joined unions through nlrb elections and national companies openly proclaimed their intent to establish a union free environment by contrast in the public sector over a third of the work force was unionized some 40 percent were covered by collective contracts 1 and 1 estimates of organization in the public sector differ somewhat among sources though all data show greater organization than in the private sector see freeman ichniowski and zax forthcoming for a detailed analysis of the various statistics

trends in union organizing expenditures 1953 1977 this paper tests the charge by some observers that one reason for the decline in unions share of private sector employment has been a decline in their commitment to growth the author presents several measures of the organizing expenditures of 27 national unions representing about one half of all union members in this country over the 1953 77 period these data show that organizing expenditures rose significantly over that period whether measured in current or constant dollars although they declined slightly as a proportion of total union expenditures

overconfidence and excess entry an experimental approach psychological studies show that most people are overconfident about their own relative abilities and unreasonably optimistic about their futures e g shelly e taylor and j d brown 1988 neil d weinstein 1980 when assessing their position in a distribution of peers on almost any positive trait like driving ability ola svenson 1981 income prospects or longevity a vast majority of people say they are above the average although of course only half can be if the trait is symmetrically distributed this paper explores whether optimistic biases could plausibly and predictably influence economic behavior in one particular setting entry into competitive games or markets many empirical studies show that most new businesses fail within a few years for example using plant level data from the u s census of manufacturers spanning 1963 1982 timothy dunne et al 1988 estimated that 61 5 percent of all entrants exited within five years and 79 6 percent exited within 10 years most of these exits are failures see also dunne et al 1989a 1989b d shapiro and r s khemani 1987

preference reversals for ambiguity aversion this paper finds preference reversals in measurements of ambiguity aversion even if psychological and informational circumstances are kept constant the reversals are of a fundamentally different nature than the reversals found before because they cannot be explained by context dependent weightings of attributes we offer an explanation based on sugden s random reference theory with different elicitation methods generating different random reference points then measurements of ambiguity aversion that use willingness to pay are confounded by loss aversion and hence overestimate ambiguity aversion this paper was accepted by teck ho decision analysis

a reconsideration of the uncovered interest parity relationship abstract this paper argues that the uncovered interest parity uip relationship is distinct from and more important than the unbiasedness of forward exchange rates as predictors of future spot rates the standard finding that the slope estimate b is roughly 3 in regressions of s t on t 1 s t 1 implies rejection of unbiasedness but not necessarily uip the hypothesis that monetary authorities manage interest rates so as to smooth their movements while also resisting changes in exchange rates is attractive conceptually and is capable of explaining not only the b 3 finding but also several other notable features of the data

arming as a strategic investment in a cooperative equilibrium to develop a positive economic theory of military spending this analysis focuses on a game theoretic general equilibrium model of international conflict in which consumption peaceful investment and military spending are endogenously determined the analysis illustrates that when there is repeated interaction between nations a game of threats and punishments generally will not support a disarmament outcome and that fluctuations in military spending can be an endogenous result of fluctuations in aggregate economic activity furthermore the analysis shows how the relation between aggregate economic activity and military spending qualitatively depends on whether governments are acting opportunistically or cooperatively copyright 1990 by american economic association

a european defence union a european defence union jacques fontanel and ron smith the end of the cold war the unification of germany and the removal of us troops has rekindled interest in european defence cooperation the ec has common security policies on its agenda the military role of the weu is being enhanced and the new nato strategy emphasizes multilateral european forces a european defence union offers large potential efficiency gains power like any natural monopoly is generated more effectively and more cheaply by joint forces than by the sum of fragmented individual forces there are also large economies of scale in weapons production trends in budgets costs and threats are making national provision problematic and national arms industries non viable an edu may appear more attractive than either spending vast sums to attain minimum efficient scale or relying on forces that are so small and ill equipped as to require either dependence on the us or acceptance of effective neutrality however an edu reduces national sovereignty poses problems of command control and organization risks free riding and adverse reactions by the us and ussr and is vulnerable to exploitation and rent seeking by military industrial interests this paper examines the economics of these issues and suggests a route towards effective cooperation

the disposition effect in securities trading an experimental analysis the disposition effect is the tendency to sell assets that have gained value winners and keep assets that have lost value losers disposition effects can be explained by the two features of prospect theory the idea that people value gains and losses relative to a reference point the initial purchase price of shares and the tendency to seek risk when faced with possible losses and avoid risk when a certain gain is possible our experiments were designed to see if subjects would exhibit disposition effects subjects bought and sold shares in six risky assets asset prices fluctuated in each period contrary to bayesian optimization subjects did tend to sell winners and keep losers when the shares were automatically sold after each period the disposition effect was greatly reduced

where have all the union members gone this paper examines trends in union membership during the twentieth century the hypothesis is advanced that the provision of certain social welfare benefits by government substitutes for the private provision by unions thereby reducing the attractiveness of union membership the empirical implications of this hypothesis are examined using time series data on aggregate union membership for the period 1904 80 and using pooled state data for the period 1964 80 these latter data are used to examine the effect of departures from the traditional doctrine of employment at will both the time series and the cross section evidence suggest that government supply of union like services reduces union membership

investor overconfidence and the forward premium puzzle we offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence in the model overconfident individuals overreact to their information about future inflation which causes greater overshooting in the forward rate than in the spot rate thus when agents observe a signal of higher future inflation the consequent rise in the forward premium predicts a subsequent downward correction of the spot rate the model can explain the magnitude of the forward premium bias and several other stylized facts related to the joint behaviour of forward and spot exchange rates our approach is also consistent with the availability of profitable carry trade strategies

first contract arbitration effects on bargaining and work stoppages newly certified unions often experience difficulty negotiating a first agreement to remedy this the employee free choice act proposes that the national labor relations act provide for first contr

overconfidence subjective perception and pricing behavior abstract we study the implications of overconfidence for price setting in a monopolistic competition setup with incomplete information our price setters overestimate their abilities to infer aggregate shocks from private signals the fraction of uninformed firms is endogenous firms can obtain information by paying a fixed cost we find two results i overconfident firms are less inclined to acquire information relative to the rational benchmark ii prices might exhibit excess volatility driven by non fundamental noise we explore the empirical predictions of our model for idiosyncratic price volatility