does money talk the effect of a monetary attribute on the marginal values in a choice experiment when designing choice experiments for nonmarket valuation the role of the price attribute is of major importance in the energy sector the uncertainty of future direction of changes in prices makes it difficult to include an adequate price vector in the design we separately investigate the implication of using price vectors with increases and decreases in tariffs from current levels on marginal value estimate from choice experiment data developed using prospect theory in addition we also analyse the effect of excluding the price vector on these marginal values by and large our results support the neoclassical theory as we find that the means of the conditional estimates of the marginal values of attributes are unaffected by the direction of the price change and from exclusion of the price attribute however the distributions show a larger spread of values when the choice experiment implies a tariff decrease which may have policy implications

is tiger woods loss averse persistent bias in the face of experience competition and high stakes although experimental studies have documented systematic decision errors many leading scholars believe that experience competition and large stakes will reliably extinguish biases we test for the presence of a fundamental bias loss aversion in a high stakes context professional golfers performance on the pga tour golf provides a natural setting to test for loss aversion because golfers are rewarded for the total number of strokes they take during a tournament yet each individual hole has a salient reference point par we analyze over 2 5 million putts using precise laser measurements and find evidence that even the best golfers including tiger woods show evidence of loss aversion jel d03 d81 l83

releasing the regret lock consumer response to new alternatives after a sale this research examines how consumers behave after they miss a sale and subsequently face a smaller sale for the same or different product according to the proposed theory a two way interaction is predicted in which adding another similar alternative to the choice set leads to higher choice deferral without prior sale information but lower choice deferral with information about missing a larger sale on one of the alternatives in addition the new alternative in the choice set becomes more attractive and captures most of the market share the results from three lab experiments and one field experiment confirm the hypotheses and the proposed mechanism the article concludes with a discussion of the theoretical and managerial implications of the findings

the choice of exchange rate regime and the volatility of exchange rates after the asian crisis a counterfactual analysis the objective of this paper is to carry out a counterfactual analysis of the impact of alternative exchange rate regimes on the volatility of the nominal effective exchange rate neer and the bilateral rate against the us dollar for nine east asian countries after the asian financial crisis our hypothetical regimes include a unilateral basket peg ubp a common basket peg cbp and a hard peg against the dollar we find that a ubp would minimise effective exchange rate volatility for all countries and provides the highest regime gains compared to actual although the gains for a cbp are always less than those for a ubp the absolute differences between the two regimes appear to be small in terms of the bilateral relationship against the dollar the gains from a ubp or cbp could be quite significant for the non dollar peggers since a fall in effective instability would be accompanied by a fall in bilateral instability

a dynamic explanation of the willingness to pay and willingness to accept disparity a fundamental tenet in neoclassical theory is the basic independence assumption an individual s preferences are assumed to be measured over levels not changes although most theoretical and applied economic models invoke this assumption a wealth of data from laboratory experiments refutes this premise as systemic empirical disparities have been observed between willingness to pay wtp and willingness to accept wta for the same good e g kahneman knetsch and thaler 1990 with wta often observed to be many times larger than wta in an influential line of work hanemann 1991 argues that the large wta wtp disparities that have been observed in the literature can be reconciled with static neoclassical theory via income and substitution effects i but the empirical evidence to date has not conformed well to hanemann s 1991 or any other neoclassical based model 2 if the observed value disparity is inconsistent with neoclassical explanations and is found to be a fundamental component of individual s preferences as per reference dependent theory kahneman and tversky 1979 tversky and kahneman 1991 then a reevaluation of a good deal of economic analysis is necessary in this article we provide a different explanation for the wta wtp disparity a dynamic theory based on the presence of commitment costs and possibly asymmetric beliefs about market opportunities when the value of a good is uncertain wtp and wta will logically reflect compensation for the possibility of learning that the good has a different value than believed at the time of purchase or sale and the cost associated with reversing the purchase or sale decision in its simplest form our model predicts that with objective symmetric beliefs about market opportunities and with perfect substitutability and no income effects there should be no value disparity intuitively the objective cost of delaying the purchase or alternatively reversing the purchase for prospective buyers is isomorphic to the objective cost of reversing or delaying the sale for prospective sellers this symmetry necessarily leads to wta wtp consistent with the neoclassical paradigm importantly however it is an agent s perception of the delay and reversal costs that motivates behavior if agents behave in a manner consistent with the developing literature on cognitive dissonance and or limited memory it is quite plausible for individuals to display an asymmetric perception of the relative costs of selling later depending upon whether they are placed in the role of a buyer or seller 3 this type of asymmetry alone can yield the systematic value divergences observed in the literature indeed we show that even with only slight asymmetries in beliefs of perceived costs our theory can generate considerable value divergences because the actual divergence will depend upon the interaction of this asymmetry with the degree of value uncertainty time preference and lost value of consumption we explore the predictive power of our theory by examining wta and wtp statements of value from consumers in a competitive marketplace the sportscard market although we do not consider the sportscard marketplace particularly worthy of study in its own right it is useful for our purposes for several reasons first it is a natural setting for an examination of preference structures because it provides a rich pool of subjects making decisions in a familiar environment with uncertainty and future learning about the values of traded goods second we can identify factors that arise endogenously such as market experience and impose the remaining controls necessary to implement a clean experiment to explore whether such factors attenuate the value disparity through the channels predicted by our theory our data are striking in that agents display an asymmetric perception of the relative costs of selling later depending upon whether they are placed in the role of a buyer or seller

strategic price complexity in retail financial markets abstract there is mounting empirical evidence to suggest that the law of one price is violated in retail financial markets there is significant price dispersion even when products are homogeneous also despite the large number of firms in the market prices remain above marginal cost and may even rise as more firms enter in a non cooperative oligopoly pricing model i show that these anomalies arise when firms add complexity to their price structures complexity increases the market power of the firms because it prevents some consumers from becoming knowledgeable about prices in the market in the model as competition increases firms tend to add more complexity to their prices as a best response rather than make their disclosures more transparent because this may substantially decrease consumer surplus in these markets such practices have important welfare implications

u s bilateral trade flows and exchange risk during the floating period abstract this paper tests for real exchange rate risk effects on u s bilateral trade flows during the floating period using several new as well as previously used risk measures significant negative effects occur in five of six u s import flows and in two of six u s export flows with one export flow showing a significant positive effect these results are consistent with several previous findings for aggregate u s trade two risk measures using the forward exchange rate and assuming a time varying risk premium provide marginally more significant results than the others

trends and volatilities in foreign patents registered in the usa this study analyses the patent trends and volatilities for the top 12 foreign patenting countries in the us market from 1975 to 1997 japan is ranked first in terms of foreign patents registered in the usa followed by germany patent registrations from each of these countries have increased steadily over time but at different rates using monthly time series data for 1975 1997 the time varying volatility of australian japanese and german patents registered in the usa is examined in detail the asymmetric ar 1 gjr 1 1 model is found to be suitable for australia and japan while the best fitting model for germany is the symmetric ar 1 garch 1 1 model

consumer preference for a no choice option the traditional focus in the decision making literature has been on understanding how consumers choose among a given set of alternatives the notion that preference uncertainty may lead to choice deferral when no single alternative has a decisive advantage is tested in seven studies building on recent research the article shows that the decision to defer choice is influenced by the absolute difference in attractiveness among the alternatives provided and is not consistent with trade off difficulty or the theory of search these findings are then extended to show that choice deferral can also be modified for the same alternatives by manipulations that make them appear more similar in attractiveness or that decrease the need to differentiate among them the results are consistent with the notion that preference uncertainty results in a hesitation to commit to any single action since small differences in attractiveness among the alternatives are potentially reversible consistent with this premise the effect of attractiveness difference on choice deferral decreased significantly when subjects were first allowed to practice making monetary trade offs among the available alternatives

exchange rate volatility international trade and resource allocation a perspective on recent research abstract recent research on the effects of exchange rate volatility is discussed and directions for future research are explored the need to pay more attention to the effects of diversification and firms characteristic is emphasized it is suggested that while international risk has risen substantially since floating the differential between international and domestic risk may not this could help explain the failure of international trade to fall drastically and suggests that exchange rate volatility has been more a reflection than an independent cause of underlying instability

do professional traders exhibit myopic loss aversion an experimental analysis two behavioral concepts loss aversion and mental accounting have been combined to provide a theoretical explanation of the equity premium puzzle recent experimental evidence supports the theory as students behavior has been found to be consistent with myopic loss aversion mla yet much like certain anomalies in the realm of riskless decision making these behavioral tendencies may be attenuated among professionals using traders recruited from the cbot we do indeed find behavioral differences between professionals and students but rather than discovering that the anomaly is muted we find that traders exhibit behavior consistent with mla to a greater extent than students

the causes of order effects in contingent valuation surveys an experimental investigation contingent valuation researchers have found that the hypothetical values respondents place on a nested sequence of environmental goods are sensitive to the order in which the goods are presented typically the smallest bundle of goods is valued more highly if presented first than if following more comprehensive bundles such effects appear even when each bundle is valued from an exclusive list or as an alternative to any other so that income and substitution effects are controlled we conduct lab experiments where participants are asked to value sequences of nested goods for purchase from an exclusive list using an incentive compatible becker degroot marschak mechanism we test whether order effects occur in valuation for a induced value goods b actual private goods and c identical private goods that are to be donated to charities we find significant order effects when the goods are valued for own use but not when they are valued for donation

risk mis perception when greater risk reduces risk valuation the authors show that the value of a risky option decreases upon addition of risky prospects of the same valence for instance a medical drug with a potential side effect of seizures is viewed as less threatening when it also has smaller potential side effects such as congestion and fatigue travel insurance covering serious injury is viewed as less attractive when it also covers minor ailments a lottery offering a chance to win an ipad is viewed as less attractive when it also offers a chance to win smaller prizes as a result consumers can perceive normatively more dangerous beneficial options to be less dangerous beneficial and normatively less dangerous beneficial options to be more dangerous beneficial this effect arises because people believe that larger prospects e g seizures are less likely than smaller prospects e g congestion therefore inclusion of smaller prospects by contrast makes a larger prospect appear less likely which in turn reduces the perceived value of the risky option thus this effect arises only when smaller prospects are added to a larger prospect and only when the prospects are probabilistic cognitive load and feelings of personal control also moderate the effect

the effectiveness of alternative preference elicitation procedures in predicting choice in a large scale national study the authors evaluated the effectiveness of several preference elicitation techniques for predicting choices the criteria for accuracy included both individual hit

that s news to me information revelation in professional certification markets i introduction market economies devote substantial resources to certify product quality educational testing services ets offers sat tests for college applicants u s news world report ranks universities underwriters laboratories certifies consumer and industrial products moody s reports bond ratings and accounting companies audit financial reports for public corporations in theory if one party of the trade possesses superior information about product quality a professional certificate can alleviate the information asymmetry and therefore attenuate the lemons problem and facilitate trade akerlof 1970 1 the informational role of professional certification has profound implications for markets yet little is known empirically how professional certifiers behave and compete indeed while theories have advanced to making welfare comparisons across market structures franzoni 1999 lizzeri 1999 and regulators express concerns about the market power of certifiers u s securities and exchange commission sec 2003 little is known about the primitive facts on market structure and certifier performance for example what information does a monopoly certifier provide who obtains useful information from such a certificate how do subsequent entrants compete with the incumbent and whether and to what extent entrants provide information to the market are all fundamental questions to which we have limited insights the lack of clean empirical evidence is not surprising since observational data alone might confound criteria differences and sorting effects rendering field data suggestive but not entirely compelling indeed even when field data circumvent these problems too many theoretically relevant factors change simultaneously to allow a clean comparative static test the goal of this paper is to use two controlled field experiments to provide empirical insights on these basic questions using sportscard grading as an example we employ an approach field experiments that might prove useful for future scholars studying related phenomena for decades a popular tool in the literature to answer such questions has been an event study event studies infer information content by comparing for example market prices before and after the release of bond ratings or analysts earnings report assuming market price is a sufficient statistic of the information available to the market the event study approach has two caveats it is difficult to control simultaneous information flow and it is difficult to pin down the exact timing of the arrival of the certificate rumors may spread before the official announcement we overcome these difficulties by collecting data from one natural field experiment and one framed field experiment see harrison and list 2004 for a detailed discussion of natural versus framed field experiments both experiments are undertaken in naturally occurring settings where the key theoretical factors are identifiable and arise endogenously our chosen market the sportscard grading industry is attractive in this regard for several reasons first there is a generally agreed upon set of traits for grading sportscards and quality is a major determinant of price second the industry is relatively young and thus far has been unregulated third there has been little change in the grading technology but the industry has evolved dramatically over the last 20 yr specifically the first grading service professional sports authenticators psa began operating in 1987 and now belongs to a publicly traded company due to institutional reasons detailed below psa has not changed its grading system since its inception in 1999 the market expanded and two competitors entered the market sportscard guaranty llc sgc entered in early 1999 and beckett grading services bgs entered later in 1999 all three services continue operating today and at least 14 other fringe grading companies have joined the market since 1999

the effect of ordering decisions by choice set size on consumer search consumers frequently engage in sequential decisions this article explores whether the order of these decisions can influence the manner in which consumers search through the possible choice options results from five studies suggest that ordering decisions by increasing vs decreasing choice set size leads to greater search depth measured by both sampling count and decision time initial smaller choice sets in increasing sequences appear to initiate a maximizing mind set which then persists even as participants encounter later larger choice sets these participants report a greater desire to maximize and are less satisfied with their decisions consistent with research on chronic maximizers in addition they continue to exhibit maximizing behavior in subsequent unrelated tasks supporting a mind set account of the differences in search in sum decision makers are proposed to be sticky adapters initial decision strategies seem to constrain the extent to which they adapt to new contexts

when more is less and less is more the role of ideal point availability and assortment in consumer choice contrary to the common wisdom that more choice is always better selections made from large assortments can lead to weaker preferences building on the extant literature this research identifies ideal point availability as a key factor moderating the impact of assortment on choice it is proposed that in the case of large assortments ideal point availability can simplify choice leading to a stronger preference for the selected alternative in contrast for choices made from smaller assortments ideal point availability is proposed to have the opposite effect leading to weaker preferences data obtained from four experiments lend support for the theory and the empirical predictions advanced in this article

the resource reallocation costs of fixed and flexible exchange rates a multi country extension abstract for a sample of nineteen countries for 1972 79 we test the hypothesis that reallocation costs associated with temporary disturbances to the export sector of an economy are equal under fixed and flexible exchange rates this test is an extension of earlier work indicating that in the special case of canada reallocation costs do not differ significantly under fixed and flexible rates the degree of industrialization and openness of the countries included in the sample varies greatly so it is interesting that the canadian result generalizes to all but two cases these results suggest that even during periods of considerable exchange rate variability unnecessary resource reallocation costs may not be a significant disadvantage of a flexible exchange rate system

testing preference formation in learning design contingent valuation using advance information and repetitive treatments policymakers have largely replaced single bounded discrete choice valuation by the more statistically efficient repetitive method double bounded discrete choice and discrete choice experiments repetitive valuation permits classification into rational and irrational preferences 1 a priori well formed 2 consistent nonarbitrary values discovered through repetition and experience 3 consistent but arbitrary values as shaped by preceding bid level and 4 inconsistent and arbitrary values policy valuations should demonstrate behaviorally rational preferences we outline novel methods for testing this in double bounded discrete choice experiments applied to renewable energy premiums in chile

overchoice and assortment type when and why variety backfires almost universally research and practice suggest that a brand that increases its product assortment or variety should benefit through increased market share in this paper we show this is not always the case we introduce the construct assortment type and demonstrate that the effect of assortment size on brand share is systematically moderated by assortment type we define an alignable assortment as a set of brand variants that differ along a single compensatory dimension such that choosing from that assortment only requires within attribute trade offs in contrast we define a nonalignable assortment as a set of brand variants that simultaneously vary along multiple noncompensatory dimensions demanding between attribute trade offs in turn we argue that an alignable assortment can efficiently meet the diverse tastes of consumers thereby increasing brand share but that a nonalignable assortment increases both the cognitive effort and the potential for regret faced by a consumer thereby decreasing brand share we term this effect overchoice across three studies we provide evidence of overchoice and tie the effect to the effort and regret brought about by nonalignability in the process we demonstrate that simplification of information presentation reversibility of choice and a reduction in underlying nonalignability serve to reduce or eliminate this effect

magnitude time and risk differ similarly between joint and single evaluations arguably all choice options involve three basic attributes magnitude outcome size time of occurrence and probability of occurrence and are evaluated in one of two basic evaluation modes je joint evaluation involving comparison of multiple options and se single evaluation without comparison this research explores how reactions to the three basic attributes and their associated functions utility time discounting and probability weighting vary between the two basic evaluation modes nine studies tapping diverse contexts yield two general results first for all these attributes people are more sensitive to variations near endpoints zero magnitude no delay and 0 or 100 probability than in other regions and this differential sensitivity is more pronounced in se than in je second when faced with options involving a trade off between magnitude and time delay or between magnitude and probability risk people are both more delay averse and more risk averse in se than in je

empirical of the taiwan stock index option price forecasting model applied artificial neural network this work presents a novel neural network model for forecasting option prices using past volatilities and other options market factors out of different approaches to estimating volatility in the option pricing model this study uses backpropagation neural network to forecast prices for taiwanese stock index options the ability to develop accurate forecasts of grey prediction volatility enables practitioners to establish an appropriate hedging strategy at in the money option

exchange rate volatility and exports new empirical evidence from the emerging east asian economies this paper examines the impact of bilateral real exchange rate volatility on real exports of five emerging east asian countries among themselves as well as to 13 industrialised countries we recognise the specificity of the exports between the emerging east asian and industrialised countries and employ a generalised gravity model in the empirical analysis we use a panel comprising 25 years of quarterly data and perform unit root and cointegration tests to verify the long run relationship among the variables the results provide strong evidence that exchange rate volatility has a negative impact on the exports of emerging east asian countries in addition the results suggest that the pattern of bilateral exports is influenced by third country variables an increase in the price competitiveness of other emerging east asian countries has a negative impact on a country s exports to a destination market but the magnitude of the impact is relatively small these results are robust across different estimation techniques and do not depend on the variable chosen to proxy exchange rate uncertainty the results of the gmm iv estimation also confirm the negative impact of exchange rate volatility on exports and suggest that this negative relationship is not driven by simultaneous causality bias

how can behavioral economics inform non market valuation an example from the preference reversal literature nber working paper serieshow can behavioral economics inform non market valuation an example from the preference reversal literaturejonathan e alevyjohn listwiktor adamowiczworking paper 16036http www nber org papers w16036national bureau of economic research1050 massachusetts avenuecambridge ma 02138may 2010alevy assistant professor of economics university of alaska anchorage list professor of economics university of chicago and nber adamowicz professor of economics university of alberta thanksto ian bateman daniel kahneman glenn harrison liesl koch and robert sugden for helpful comments seminar participants at several universities and conferences also provided useful feedback any errorsor omissions remain our responsibility the views expressed herein are those of the authors and donot necessarily reflect the views of the national bureau of economic research 2010 by jonathan e alevy john list and wiktor adamowicz all rights reserved short sectionsof text not to exceed two paragraphs may be quoted without explicit permission provided that fullcredit including notice is given to the source

an empirical analysis of patents flows and r d flows around the world in this article we empirically investigate the effect of research and development r d flows on patent flows around the world we do this using an unbalanced panel consisting primarily of organization for economic co operation and development oecd countries that have both patent and r d expenditure information broken down by domestic and foreign sources our analysis shows that even among a fairly homogeneous group of countries the sources of patents and r d differ substantially using a dynamic panel framework we find that domestic r d per capita increases domestic patents per capita only for the european patent convention epc countries that already have a decentralized approach to innovation foreign r d per capita increases foreign patents per capita in all countries even though foreign r d constitutes a very small fraction of total r d we find that some of these differences can be attributed to the locations of the patent applications including those to the european patent office epo unit

how does country risk affect innovation an application to foreign patents registered in the usa abstract innovation can occur at the national level under a wide range of settings however the leading innovative countries internationally have several common traits including economic financial and political stability which are reflected in various measures of country risk the purpose of the paper is to examine for the first time the relationship between the economic financial and political country risk ratings on the one hand and innovation as measured by a country s registered patents on the other the relationships between various monthly country risk ratings and registered patents are analyzed for the leading 12 foreign patenting countries in the usa from 1975 to 1997 the empirical results show that economic financial and political risk ratings have a considerable impact on the innovative activities of the 12 countries total us patent applications are also influential in inducing innovation in the 12 countries such issues have not previously been addressed in the literature on country risk and innovation

the uncertainty effect when a risky prospect is valued less than its worst possible outcome expected utility theory prospect theory and most other models of risky choice are based on the fundamental premise that individuals choose among risky prospects by balancing the value of the possible consequences these models therefore require that the value of a risky prospect lie between the value of that prospect s highest and lowest outcome although this requirement seems essential for any theory of risky decision making we document a violation of this condition in which individuals value a risky prospect less than its worst possible realization this demonstration which we term the uncertainty effect draws from more than 1000 experimental participants and includes hypothetical and real pricing and choice tasks as well as field experiments in real markets with financial incentives our results suggest that there are choice situations in which decision makers discount lotteries for uncertainty in a manner that cannot be accommodated by standard models of risky choice from the time of bernoulli on it has been common to argue that a individuals tend to display aversion to the taking of risks and b that risk aversion in turn is an explanation for many observed phenomena in the economic world arrow 1971 p 90

protectionist pressures and aggregate economic conditions comment on takacs this paper explores the influence of u s macroeconomic conditions and the international trade position on protectionist pressures as measured by escape clause cases brought before the international trade commission several possible difficulties with takacs pioneering empirical study of this topic are considered it is argued that while further support is found for her principal conclusion that the state of the domestic economy is a significant determinant of such protectionist pressures the quantitative strength of such aggregate factors is less than was suggested by takacs original study

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

banks financial liberalisation and financial crises in emerging markets the east asian financial crisis has raised a series of important issues amongst them is the question of the role of the banking sector and financial liberalisation in contributing to financial crises how do weaknesses in the domestic banking sector when combined with both domestic and international financial liberalisation engender currency crises what is lacking in the literature is a simple conceptual framework within which these connections can be conceptualised and drawn out and in which the role of banks is explicitly discussed this paper seeks to provide just such a framework within it international financial liberalisation can be seen as fuelling a boom in domestic credit which leads to acute balance sheet problems for domestic banks and exposes the country concerned to a currency crisis in the event of a sudden reversal of capital inflows which banking weaknesses may itself trigger

recent theoretical results for time series models with garch errors this paper provides a review of some recent theoretical results for time series models with garch errors and is directed towards practitioners starting with the simple arch model and proceeding to the garch model some results for stationary and nonstationary arma garch are summarized various new arch type models including double threshold arch and garch arfima garch charma and vector arma garch are also reviewed copyright 2002 by blackwell publishers ltd

experimental auction procedure impact on valuation of quality differentiated goods despite increased use of experimental auctions a myriad of different procedures are being employed without formal consideration of how the procedures might affect results this study investigates the effect of several procedural issues on valuation estimates from experimental auctions results indicate the second price auction generates higher valuations than english becker degroot marschak bdm and random nth price auctions especially in latter bidding rounds and that random nth price auction yields lower valuations than english and bdm auctions we find that endowing subjects with a good prior to eliciting bids can have an impact on valuations but the effect varies across auction mechanism

when to dollarize implicit in the debate over dollarization are two very different views of the sequencing of policy measures one view is that dollarization to work smoothly and yield more benefits than costs must wait on the completion of complementary reforms the other view is that dollarization need not wait on these other reforms because the very act of dollarizing will produce the changes needed to smooth the operation of the new regime in this paper i consider these arguments as they apply to the cases of labor market reform fiscal reform and financial sector reform i conclude that neither theory nor evidence suggests that removing all scope for an independent monetary policy will necessarily accelerate the pace of reform

are results from non hypothetical choice based conjoint analyses and non hypothetical recoded ranking conjoint analyses similar conflicting findings have been found in previous research that compared choice based conjoint analysis and ranking conjoint analysis in a public good setting the present paper revisits this issue for a private good in a non hypothetical context using small and large choice sets our results suggest that in a small choice set setting participants preferences and willingness to pay are similar across the two conjoint analysis formats however in large choice sets a divergence between the two conjoint analysis formats emerges hence the two conjoint analysis formats can only be used interchangeably in small choice sets not in large choice sets

what percentage of innovations are patented empirical estimates for european firms abstract a 1993 survey on the innovative activities of europe s largest industrial firms obtained useable results on patenting activities for 604 respondents the data are used to calculate the sales weighted propensity rates for 19 industries the propensity rates equal the percentage of innovations for which a patent application is made the propensity rates for product innovations average 35 9 varying between 8 1 in textiles and 79 2 in pharmaceuticals the average for process innovations is 24 8 varying from 8 1 in textiles to 46 8 for precision instruments only four sectors have patent propensity rates for both product and process innovations combined that exceed 50 pharmaceuticals chemicals machinery and precision instruments regression results that control for the effect of industry sector show that patent propensity rates increase with firm size and are higher among firms that find patents to be an important method for preventing competitors from copying both product and process innovations the effect of secrecy is not so straightforward firms that find secrecy to be an important protection method for product innovations are less likely to patent as expected but secrecy has little effect on the propensity to patent process innovations the r d intensity of the firm has no effect on patent propensity rates for both product and process innovations the sector of activity has a strong influence on product patent propensities but very little effect on process patent propensities after controlling for the effect of other factors

field experiments on the anchoring of economic valuations i introduction take the last three digits of your social security number ssn turn those numbers into a dollar value i e if your numbers are 462 then they provide a value of 462 consider whether you would be willing to pay that dollar amount for a first edition of j r r tolkien s the hobbit now how much would you actually pay for a first edition original copy a stylized result from laboratory experiments in economics and psychology is that the answer to the latter valuation question can be strongly influenced by the dollar amount computed at the start 1 critics of neoclassical theory have argued that the influence of uninformative anchors such as the transformed ssn refutes the notion that decision makers preferences are predefined consistent and stable instead they are constructed during the process of choice bettman luce and payne 1998 hoeffler and ariely 1999 slovic 1995 a natural conclusion one might draw from studies of anchoring is that decisions may be influenced by irrelevant circumstances and optimization principles do not apply the laboratory evidence consonant with anchoring effects is considerable tversky and kahneman 1974 make a seminal contribution implementing a protocol similar to the one described above to examine general knowledge questions 2 furnham and boo 2011 provide a recent review of the literature and identify more than 25 studies that report significant anchoring effects substantive areas investigated include general knowledge questions epley and gilovich 2006 tversky and kahneman 1974 probability estimates wright and anderson 1989 legal judgments englich and mussweiler 2001 forecasting switzer and sniezek 1991 and valuation and purchasing decisions ariely loewenstein and prelec 2003 taken together the results suggest strong effects from anchoring protocols even in areas where subjects have significant experience yet the importance of anchoring for economic outcomes remains an open question one reason is that research goals and methods differ across the disciplines of psychology and economics croson 2005 hertwig and ortmann 2001 plott 1996 3 fumham and boo 2011 note that drawing generalizable conclusions from the existing anchoring studies is difficult as many involve undergraduate students engaged with topics they are unlikely to encounter in field settings their observation is consistent with the criticism of the ecological validity of many studies made by gerd gigerenzer and colleauges gigerenzer et al 2008 discussed in our footnote 2 while the results of these studies may help distinguish among competing causal claims about the anchoring process they are less relevant for understanding the potential for anchors to affect market equilibria further many of the studies lack meaningful incentives and we believe that economists are justifiably circumspect about results that may merely reflect mistakes made by unmotivated subjects consistent with this view is the idea that with appropriate incentives and feedback anchoring effects should diminish and behavior more closely match predictions from neoclassical models 4 recent attempts to examine the relevance of anchoring for economic outcomes closely follow ariely loewenstein and prelec 2003 alp hereafter who find statistically and economically significant effects of anchors on willingness to pay wtp for common consumer goods and on willingness to accept wta for unpleasant sounds and tastes bergman et al 2010 and fudenberg levine and maniadis 2012 flm hereafter replicate the consumer goods portion of the alp study with mixed results bergman et al 2010 find significant anchoring results consistent with the earlier work although the magnitude of the effect is smaller implementing an auxiliary protocol they find also that anchoring effects diminish with cognitive ability flm 2012 attempt to anchor both wtp and wta and find no evidence of anchoring in the wtp treatment

currency hedging and goods trade abstract a puzzle in empirical international finance is the difficulty in finding a large and negative effect of exchange rate volatility on international trade a common explanation is the availability of hedging instruments this paper examines the empirical validity of this explanation using data on over 1000 country pairs which countries have currency hedging instruments is not perfectly observable this paper deals with the problem by specifying an endogenous regime switching regression there are two main findings first there is no evidence in the data to support the validity of the hedging hypothesis second for country pairs with large trade potential exchange rate volatility deters goods trade to an extent much larger than that typically has been documented in the literature without using the switching regression specification

what is behind the recent surge in patenting abstract we investigate the cause of an unprecedented surge of us patenting over the past decade conventional wisdom points to the establishment of the court of appeals of the federal circuit by congress in 1982 we examine whether this institutional change which has benefited patent holders explains the burst in us patenting using both international and domestic data on patent applications and awards we conclude that the evidence is not favorable to the conventional view instead it appears that the jump in patenting reflects an increase in us innovation spurred by changes in the management of research

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

the economics of product variety a survey demand for variety may arise from a taste for diversity in individual consumption and or from diversity in tastes even when each consumer chooses a single variant the full degree of variety potentially demanded will not in general be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants the economics of product variety consists essentially in analysing the effect of this balance in different situations and comparing the degree of product variety for different market structures with each other and with the optimum the survey commences with the work on market structures with single product firms generalized monopolistic competition tracing modern developments in both the chamberlinian and hotelling traditions the latter has been particularly fruitful due to the expansion of the original locational ideas into virtual spaces in product characteristics the emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures including strategic market preemption although most work has been in a full information context there have been advances in product variety under imperfect information either by consumers to properties of the firms products or firms as to consumers demands

effects of environmental regulation on foreign and domestic plant births is there a home field advantage abstract whether environmental regulations alter capital flows remains a hotly debated issue this paper uses county level data to examine the location decisions of domestic and foreign firms in a single empirical model and tests for asymmetries by firm origin in the degree to which capital flows are influenced by environmental standards we find that while domestic firms are influenced by environmental regulations foreign firms are not since the benefits of foreign investment are well documented foreign plants typically provide more jobs and increase local wages by more than domestic plants this result suggests a double dividend is available foreign plants provide an economic stimulus and are not unduly influenced by environmental protections

differentiation and parity in assortment pricing are consumers more likely to purchase an item from an assortment in which options are priced at parity or from an assortment in which options vary in price this research examines the influence of parity pricing and differentiation pricing strategies on consumer choice and identifies conditions in which parity pricing facilitates choice as well as conditions in which choice is facilitated by differential pricing in a series of three experiments the impact of assortment pricing on choice is shown to be a function of the uncertainty associated with consumers preferences and the consistency of these preferences with options prices

misalignment of the baht and its trade balance consequences for thailand in the 1980s and 1990s this paper examines thailand s pre crisis exchange rate policy focusing on the degree of the country s real exchange rate misalignment pre crisis and its consequent effects on thailand s trade balance with its two large trading partners the us and japan in the 1980s and 1990s defining misalignment as the difference between actual and equilibrium exchange rates we estimate three key equilibrium exchange rates of the thai baht a the real effective equilibrium exchange rate of the thai baht against its twenty two major trading partners b the bilateral real equilibrium exchange rates of the baht against the us dollar and c the bilateral real equilibrium exchange rate of the baht against the japanese yen

would international currency taxation and currency stabilisation in developing countries completely flexible exchange rates may be excessively volatile with the implied currency misalignments leading to real inefficiencies in resource allocation and detrimental effects on economic growth this paper analyses whether international currency taxation would be effective in calming exchange rate volatility and avoiding currency crises within the context of a simple model of exchange rate determination it is found that the effects of a tax on foreign exchange volatility depend on the nature of speculation and whether the focus is on capital inflows or outflows

exchange rate volatility and exports from east asian countries to japan and the usa the purpose of this article is to investigate the impact of exchange rate volatility on exports in four east asian countries hong kong south korea singapore and thailand specifically this article aims at determining whether the bilateral real exchange rate volatility between an east asian country and its trading partner negatively affects the exports of the east asian country considering the dominant roles of the usa and japan as trading partners of those east asian countries this article focuses on the quarterly export volumes of east asian countries to the us and japan for the period from 1981 to 2004 except for the case of hong kong s exports to japan cointegration tests and estimations of error correction models indicate exchange rate volatility has negative impacts on exports either in the short run or in the long run or both on the other hand the real gdp of importing countries and depreciation of real bilateral exchange rates turn out in general to have positive effects of special

contextual inference in markets on the informational content of product lines context can influence decisions this malleability of choice is usually invoked as evidence that people do not maximize stable preference orderings in a market equilibrium however context conveys payoff relevant information to consumers consequently these consumers rationally violate naive formulations of standard choice theoretic principles i identify informational asymmetries under which apparently anomalous behaviors namely the compromise effect and choice overload arise as market equilibria firms respond to consumers contextual inference in case of the compromise effect a firm may introduce premium loss leaders expensive goods of overly high quality that increase the demand for other goods

optimal product line design when consumers exhibit choice set dependent preferences in a market of consumers with varying willingness to pay using product line as a discrimination tool may extract higher profits than serving all consumers with a single product local context effects however point to yet another consideration in designing product lines how the appeal of a product changes with the context provided by other products in the choice set i present a model of product line design that incorporates both discrimination and context management goals and offers recommendations for the variety and positioning of products to this end the model makes use of a framework that allows preferences to be choice set dependent given this framework i study how the firm manages externalities between products created by such dependencies the firm creates distortions above and beyond those resulting from discrimination motives alone for example in a vertically differentiated market for quality quality distortions exist even for the consumers with the highest valuations the range of quality provisions given the number of products is compressed as the relative importance of unfavorable comparisons among products increases surprisingly this compression may even lead the firm to forego discrimination among consumers regardless of the cost of offering distinct products

killing hope with good intentions the effects of consolation prizes on preference for lottery promotions the present research examines how the inclusion of consolation or token prizes influences consumers valuation of a promotional lottery results from four experiments show that consolation prizes lower consumers expectations of winning the big prize their valuations of the lottery and their intentions to participate in the lottery because of the high likelihood of attaining the consolation prizes consumers shift their focus from the value of a big prize to the probability of attaining it this shift increases the weight given to the probability dimension and results in lowered valuations of the lottery the first two experiments demonstrate the effect in hypothetical and real choices in experiment 3 the authors propose and show a boundary condition for the effect in experiment 4 they conduct an exploratory test of the process they conclude with a discussion of the theoretical and managerial implications

pushing subjects beyond rationality with more alternatives in experimental auctions the use of experimental economics in valuation of market and nonmarket goods has grown over the past few years the ability of experimental auctions eus to reveal consumer preferences and their malleability has been praised in previous literature because of the high cost of conducting eus researchers usually present multiple products to participants determining how many products to present has no clear guideline the results of this study show that subjects do not value products the same way across different number of options offered to them the main indicator is the increasing variance in responses for a benchmark product when more products are available with an econometric specification allowing for heteroscedasticity as a function of the number of product offerings the results indicate that the number of goods available for bidding is not to be taken as a trivial task in experimental design for value elicitation

scientific numerology preference anomalies and environmental policymaking recently an abundance of experimental evidence has been gathered that is consonant with the notion that individual preferences are inconsistent and unstable these empirical results potentially undermine the theoretical foundation of welfare economics as the degree of preference lability claimed suggests that perhaps no optimization principles underlie even the most straightforward of choices yet policymakers in the environmental arena continue to prescribe policies based on economics based methods that are constructed on the very principles that have been directly refuted are policymakers creatures of habit that move at glacial speed or is there something deeper behind their inertness in this study i explore this issue within the u s context and argue that there is some rationality behind current public policy decisionmaking i then explore whether the empirical evidence supports the view that policymakers should take preference anomalies seriously as a case study i focus on some of my recent findings on preference inconsistencies in the marketplace

consumer value maximizing sweepstakes and contests abstract sweepstakes and contests are some of the most frequently used promotional tools consumers participating in sweepstakes or contests have an opportunity to win prizes through a random draw the authors examine how commonly used sweepstakes formats that vary in the number of winners and the allocation of the total reward money among the winners affect consumer valuations of the promotion given a fixed amount of reward money the authors examine alternative reward formats based on the promotional objectives consumer risk aversion and degree of subadditivity they test the analytical results using an experimental approach

economic perspectives on the development of complex products for increasingly demanding customers rival firms produce products with a variety of characteristics it is typically assumed that consumers purchase those products that most closely match their ideal set of characteristics orthodox production theory economics offers no analysis of how to divide limited product development budgets between different characteristics furthermore orthodox consumer economics assumes buyers make compensatory trade offs between different product characteristics this approach ignores problems caused by bounded rationality that in complex choice environments leads buyers to formulate simplifying heuristics such as hierarchical non compensatory preferences over characteristics an integrative analytical framework is developed drawing upon orthodox economics behavioural economics and evolutionary economics implications for the relationship between incremental product development and the firm s evolving capabilities are emphasized

the self selection of complexity in choice experiments we investigate whether individuals will voluntarily increase the complexity of the tasks they complete within a discrete choice experiment dce we do this via a self selection of complexity design in which respondents choose whether to face choice sets comprising 3 4 or 6 alternatives we link this approach with the emerging excessive choice effect ece literature we find that 30 of the sample opt for the largest sets we test whether this choice of complexity reveals information about respondents capability commitment we find that it does since those with lowest initial error variance levels are most likely to later select the highest level of task complexity we argue that this result offers insights regarding the design of more cognitively efficient dce designs we consider the matching of respondents to the appropriate level of task complexity as analogous to the principal agent problem with asymmetric information rather than trying to understand respondents cognitive capability or commitment ex ante we propose that participants self select designs that achieve the researcher s objective of minimizing error variance copyright 2012 oxford university press

explaining how preferences change across joint versus separate evaluation abstract this paper examines how preferences for outcomes change across joint versus separate evaluation of alternatives in joint evaluation two or more options are presented and evaluated simultaneously in separate evaluation each option is presented and evaluated separately we review a growing body of evidence demonstrating this type of preference shift and discuss how it is different from existing biases and preference reversals documented in the literature we then review and integrate three competing explanations for this type of preferential inconsistency

flexibility in consumer purchasing for uncertain future tastes consumers often simultaneously purchase multiple units in the same product category whether they are best off purchasing an assortment of alternatives or an equal number of one alternative is addressed in this paper models of an expected utility maximizing consumer are developed and it is shown that an assortment may have greater expected utility than an equal number of any one alternative the rationale is that the assortment allows the consumer to choose from inventory the alternative most appropriate for a consumption occasion using preference information not available at the purchase occasion it is also shown that when consuming alternatives from inventory the consumer may forego the alternative offering the most utility in the expectation that it will yield even more utility in the future

preferences with and without prices does the price attribute affect behavior in stated preference surveys the experimental as well as the non market valuation literature include several examples of how an introduced price can affect behavior in otherwise not expected ways it has become standard to include a price vector as an attribute in choice experiments something that enables us to estimate a marginal willingness to pay for other attributes we test the impact on preferences by an inclusion of a price in a choice experiment preferences are affected as might be expected however also the relative ranking of individual attributes is affected

variety vice and virtue how assortment size influences option choice assortment size has been shown to influence whether consumers make a choice but could it also influence what they choose five studies demonstrate that because choosing from larger assortments is often more difficult it leads people to select options that are easier to justify virtues and utilitarian necessities are generally easier to justify than indulgences consequently choosing from larger assortments often shifts choice from vices to virtues and from hedonic to utilitarian options these effects reverse however when situational factors provide accessible reasons to indulge underscoring the role of justification implications for choice difficulty and justification processes are discussed

preference reversals the impact of truth revealing monetary incentives researchers vigorously debate the impact of incentives in preference reversal experiments do incentives alter behavior and generate economically consistent choices lichtenstein and slovic 1971 document inconsistencies reversals in revealed preference in gamble pairs across paired choice and individual pricing tasks the observed pattern is inconsistent with stable underlying preferences expressed with simple errors lichtenstein and slovic 1973 and grether and plott 1979 introduce incentives but aggregate reversal rates change little these results fostered numerous replications and assertions that models of non stable preferences are required to explain reversals contrary to this research we find that incentives can generate more economically consistent behavior our reevaluation of existing experimental data shows that incentives have a clear impact by better aligning aggregate choices and prices the effect is sufficiently large that with truth revealing incentives a stable preferences with error model not only explains behavior but fits the data as well as any model possibly could

the impact of exchange rate volatility on international trade flows despite the best efforts of economists a basic paradox as to the impact of exchange rate volatility on trade flows remains unresolved at both the theoretical and empirical level this paper surveys the vast literature in the area in an attempt to identify major issues which have contributed to the development of the debate and examine whether any general direction for consensus may be found

great expectations assortment size expectations and satisfaction abstract recent research challenges the idea that greater choice is always desirable showing that larger assortments can increase choice deferral and switching the current research demonstrates that even when consumers make a purchase the same item may generate lower satisfaction when chosen from a larger rather than a smaller assortment the authors explain this effect in terms of an expectation disconfirmation mechanism when assortments are small consumers have low expectations about their ability to match their preferences as assortment sizes increase so do consumers expectations of the degree of preference match they can achieve subsequently consumers may experience greater negative expectation disconfirmation or less positive expectation disconfirmation when a chosen item comes from a larger rather than a smaller set either less positive or more negative disconfirmation leads to lower choice satisfaction the results from three studies support this expectation based process and establish t

the discriminating consumer product proliferation and willingness to pay for quality abstract the authors propose that a crowded product space motivates consumers to better discriminate between options of different quality specifically this article reports evidence from three controlled experiments and one natural experiment that people are prepared to pay more for high quality products and less for low quality products when they are considered in the context of a dense as opposed to a sparse set of alternatives to explain this effect the authors argue that consumers uncertain about the importance of quality learn from observing market outcomes product proliferation reveals that other consumers care to discriminate among similar alternatives and in turn this inference raises the importance of quality in decision making

exchange rate policy options for post crisis southeast asia is there a case for currency baskets following the recent financial crises in southeast asia and elsewhere the perennial issue of the exchange rate policy options for small and open developing countries has resurfaced there seems to be an emerging consensus that the frequency with which soft pegs have been susceptible to speculative attacks in this era of escalating global capital flows has increased pressure for developing countries to adopt corner exchange rate regimes this paper takes issue with this popular one size fits all prescription of exchange rate arrangements for developing countries and explores exchange rate policy options for post crisis southeast asia the principal purpose of this paper is to discuss the case for currency baskets as a general regime in its own right for southeast asia as opposed to being a compromise between the two corner solutions

too much of a good thing the adequacy of international reserves in the aftermath of crises this paper has a number of purposes first it revisits the older theory of reserve adequacy and optimality to see whether this can still be used and perhaps strengthened in ways that would inform the current debate second it explores the connection between reserve adequacy and currency crisis in the light of recent experience and empirical research third it critically investigates alternative rule of thumb measures of reserve adequacy fourth and drawing on the foregoing analysis it examines the extent to which crisis countries should seek to replenish and build up their international reserves in the post crisis period additional owned reserves represent a guaranteed and unconditional source of liquidity is this what is needed

stochastic dominance and expected utility while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics

exchange rate regimes and export performance of developing countries a fter the breakdown of the bretton woods system in 1973 many developing countries moved away from single currency pegging to more flexible exchange rate regimes an extensive literature on the appropriateness of various exchange rate regimes for developing countries economic performance has developed one issue concerns how developing countries choice of exchange rate regime affects their export performance comparative analyses of the impact of various exchange rate regimes on developing countries exports have however been overlooked different exchange rate regimes give rise to different tendencies for exchange rate misalignments and exchange rate volatility there are two reasons why the exports of developing countries may be subject to more severe consequences of exchange rate misalignments and exchange rate volatility than the exports of developed countries first exporters in developing countries may be expected to be more vulnerable to exchange rate misalignments since developing countries exports are often made up of raw material and agricultural products in which exporters usually have little market power it follows that exporters will have to respond to exchange rate misalignments by changing the export quantity rather than the export price second since developing countries usually have underdeveloped financial markets exchange rate volatility may be more harmful