the impact of different incentive schemes on asset prices abstract how people are incentivized is one of the main drivers of how they behave in laboratory asset markets we evaluate the impact of four trader incentive bonus bonus with cap linear and penalty on asset prices and trader behavior we find that i an asset with identical expected dividend shows price levels which differ by more than 100 percent depending on the incentive scheme subjects face in particular prices of markets populated by subjects with bonus incentives show the highest prices whereas those with penalty like incentivized subjects exhibit the lowest ii however subjects act approximately rational as different incentives generate different optimal price levels iii in markets where different subjects have different incentive schemes we find that those with bonus incentives exhibit a riskier investment behavior and prefer the riskier asset whereas subjects with penalty incentives invest conservatively and mainly hold cash since we find no difference in risk attitude of subjects prior to the experiment differences in investment behavior are induced by the applied incentives our results highlight that incentives on financial markets have a huge impact on asset prices and investment behavior

probability judgment error and speculation in laboratory asset market bubbles in 12 sessions conducted in a typical bubble generating experimental environment we design a pair of assets that can detect both irrationality and speculative behavior the specific form of irrationality we investigate is the probability judgment error associated with lowprobability high payoff outcomes independently we test for speculation by comparing prices of identically paying assets in multiperiod versus single period markets we establish that aggregate irrationality measured in one dimension probability judgment error is associated with aggregate irrationality measured in another bubble formation

would helicopter money be spent new evidence for the netherlands according to some economists central banks should use helicopter money to boost inflation expectations based on a survey among dutch households we examine whether respondents would spend the

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

consumer response to tax rebates many households received income tax rebates in 2001 of 300 or 600 these rebates represented advance payments of the tax cut from the new 10 percent tax bracket based on a survey of a representative sample of households this paper finds that only 22 percent of households receiving the rebate would spent it instead they would either save it or use it to pay off debt this very low rate of spending represents a striking break with past behavior which would have suggested a much higher rate of spending the low spending rate implies that the tax rebate provided a very limited stimulus to aggregate demand this abstract was borrowed from another version of this item

consumer spending and the economic stimulus payments of 2008 abstract we measure the change in household spending caused by receipt of the economic stimulus payments of 2008 using questions added to the consumer expenditure survey and variation from the ran

household expenditure and the income tax rebates of 2001 using questions expressly added to the consumer expenditure survey we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis we exploit the unique randomized timing of rebate receipt across households households spent 20 to 40 percent of their rebates on nondurable goods during the three month period in which their rebates arrived and roughly two thirds of their rebates cumulatively during this period and the subsequent three month period the implied effects on aggregate consumption demand are substantial consistent with liquidity constraints responses are larger for households with low liquid wealth or low income

a theory of disappointment aversion an axiomatic model of preferences over lotteries is developed it is shown that this model is consistent with the allais paradox includes expected utility theory as a special case and is only one parameter beta richer than the expected utility model allais paradox type behavior is identified with positive values of beta preferences with positive beta are said to be disappointment averse it is shown that risk aversion implies disappointment aversion and that the arrow pratt measures of risk aversion can be generalized in a straight forward manner to the current framework copyright 1991 by the econometric society

the chinese warrants bubble in 2005 2008 over a dozen put warrants traded in china went so deep out of the money that they were almost certain to expire worthless nonetheless each warrant was traded more than three times each day at substantially inflated prices this bubble is unique in that the underlying stock prices make warrant fundamentals publicly observable and that warrants have predetermined finite maturities this sample allows us to examine a set of bubble theories in particular our analysis highlights the joint effects of short sales constraints and heterogeneous beliefs in driving bubbles and confirms several key findings of the experimental bubble literature jel g12 g13 o16 p34

how individuals respond to a liquidity shock evidence from the 2013 government shutdown abstract using comprehensive account records this paper examines how individuals adjusted spending and saving in response to a temporary drop in liquidity due to the 2013 u s government shutdown the shutdown cut paychecks by 40 for affected employees which was recovered within 2 weeks because the shutdown affected only the timing of payments it provides a distinctive experiment allowing estimates of the response to a liquidity shock holding income constant spending dropped sharply implying a naive estimate of 58 cents less spending for every dollar of lost liquidity this estimate overstates the consumption response while many individuals had low liquid assets they used multiple sources of short term liquidity to smooth consumption sources of short term liquidity include delaying recurring payments such as for mortgages and credit card balances

digital options and efficiency in experimental asset markets abstract in asset markets extraordinary price run ups bubbles followed by crashes back to levels closer to fundamental values have been shown to adversely affect the real economy leading to inefficient resource allocation and underinvestment conversely derivative markets contribute to price discovery and lead to informationally more efficient prices in the market for the underlying asset we combine these observations and test experimentally whether digital options a type of derivative that has recently been introduced to a wider audience via online prediction markets can reduce price bubbles in a laboratory setting we find that subjects do not use the derivative market to improve their expectations of future asset prices and analyze this result

relative performance incentives and price bubbles in experimental asset markets we study experimental markets in which participants face incentives modeled upon those prevailing in markets for managed funds each participant s portfolio is periodically evaluated at market value and ranked by relative performance as measured by short term paper returns those who rank highly attract a larger share of new fund inflows in an environment in which prices are typically close to intrinsic value the effect of these incentives is mild however in an environment in which markets are prone to bubble mispricing is greatly exacerbated by relative performance incentives and becomes even more pronounced with experience

market for information experimental evidence predictions of the noisy rational expectations equilibrium ree model are found to be relatively accurate for both asset and information markets in the laboratory when information about an asset s uncertain dividend is sold to a fixed number of highest bidders prices allocations efficiency and distribution of profit predictions of the full revelation ree model in the asset market dominate the predictions of the walrasian model demand for information shifts to the left and its price declines close to zero when the price of information is fixed at a relatively high level the number of informed agents and the informativeness of the asset market tends to adjust to permit the informed agents to recover their investment in information

the reaction of household consumption to predictable changes in social security taxes the key implication of rational expectations and the basic life cycle permanent income hypothesis that predictable changes in income have no effect on the growth rate of consumption expenditures is examined this implication is important for understanding the effectiveness and optimal timing of fiscal policy the causes and propagation of business cycles and the effects of income fluctuations on the growth rate of the economy using household level consumption data from the consumer expenditure survey whether expenditures on nondurable goods increase contemporaneously with predictable changes in social security tax withholding is tested it is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the social security tax system

valuing alternative work arrangements abstract we employ a discrete choice experiment in the employment process for a national call center to estimate the willingness to pay distribution for alternative work arrangements relative to tr

the formation of price forecasts in experimental markets this study utilizes laboratory experimental methods to evaluate the empirical validity of 1 muthian rational expectations assumptions 2 an adaptive expectations model and 3 an extrapolative expectations model over 5 00 price forecasts from 146 participants in twelve experimental double auction m arkets with a cash reward structure are analyzed the forecasting objective is t hemean price over a sequence of trading periods governed by stationary market parameters the price forecasts are found to be inconsistent with strict muthian rational expectations and the extrapolative modelis not supported by the data however the forecasts generally support the adaptive expectations model copyright 1987 by ohio state university press

do consumers react to anticipated income changes evidence from the alaska permanent fund a central implication of the life cycle permanentincome hypothesis lc pih is that consumers should not respond to predictable changes in their income to test this hypothesis a number of recent papers have exploited natural experiments to identify anticipated income changes in particular recent work by parker 1999 uses the change in after tax income due to the cap on earnings subject to the social security tax and a related paper by souleles 1999 examines the response of consumption to income tax refunds surprisingly parker and souleles find that even when income is expected to change within the year expenditure is excessively sensitive to the timing of the income change while their results can be interpreted as evidence that our canonical model of consumption is inadequate an alternative explanation is that the anticipated income changes they exploit are small and irregular and that households will not bother to change their consumption paths when the computational costs involved are large relative to the utility gains in support of this interpretation browning and collado 2001 find that the seasonal consumption patterns of spanish households that work in sectors that provide regular bonus payments do not differ from those of households that do not receive bonus payments this paper adds to this evidence by exploiting a natural experiment provided by annual payments from the state of alaska s permanent fund to every resident in the state of alaska that should yield an unusually powerful test of the lc pih these payments are large and clearly anticipated by alaskan residents using the variation in the size of the payments over time and in the amount received by families of different sizes to identify the response of consumption to payments from the permanent fund i find no evidence that the consumption of alaskan households reacts to these payments in addition i find no evidence that the seasonal pattern of consumption in alaska differs from that in the other 49 states or that households in alaska are subject to fewer liquidity constraints engage in less buffer stock saving or spend a smaller fraction of their income on semidurable goods than households in the rest of the united states however although households in alaska do not overreact to payments from the permanent fund i find that the consumption of the very same households is excessively sensitive to their income tax refunds this evidence suggest that households will take anticipated income changes into account in their consumption decisions when the income changes are large regular and easy to predict but will not do so when they are small and irregular the paper proceeds as follows the next section of the paper presents details on the department of economics princeton university princeton nj 08544 and national bureau of economic research e mail chsieh princeton edu i am very grateful to the bureau of labor statistics bls for providing access to the data from the consumer expenditure survey and to its staff particularly steven henderson walter vandeheide and wolf weber for their generous assistance during my visits to the bls i also thank nanci jones for providing data and patiently answering questions on the operation of the alaska permanent fund anne case angus deaton jonathan parker and two referees provided useful comments the views expressed in this paper are personal and should not be attributed to the bls 1 i refer to the certainty equivalent version of the lc pih or one in which the expected variance of consumption is constant as is well known without these assumptions the lc pih only implies smoothing of marginal utility not necessarily of consumption 2 see christina h paxson 1992 john shea 1995 jonathan a parker 1999 nicholas s souleles 1999 martin browning and m dolores collado 2001 also see ronald a bodkin 1959 for an early example of the use of a natural experiment to test for excess sensitivity for comprehensive reviews of the large literature on empirical tests of the lc pih see angus deaton 1992 browning and annamaria lusardi 1996 and browning and thomas f crossley 2001 3 in 1998 for example the permanent fund paid 1 541 to every resident of the state of alaska

hysteresis and the earnings function hysteresis in wages is modelled and a tractable earnings function is derived estimation using a recent cross section of uk data provides support for this function which also outperforms rival specifications on the basis of goodness of fit

bubbles and financial professionals the efficiency of financial markets and their potential to produce bubbles are central topics in academic and professional debates yet little is known about the contribution of financial professionals to price efficiency we run 116 experimental markets with 412 professionals and 502 students we find that professional markets with bubble drivers capital inflows or high initial capital supply are susceptible to bubbles although they are more efficient than student markets in mixed markets with students bubbles also occur but professionals act as price stabilizers we show that heterogeneous price beliefs drive overpricing especially in bubble prone market environments

debt and the response to household income shocks validation and application of linked financial account data the increasing availability of data derived from linked consumer financial accounts has the potential to dramatically expand the potential for research examining the most comprehensive existing se

famous first bubbles t he jargon of economics and finance contains numerous colorful expressions to denote a market determined asset price at odds with any reasonable economic explanation such words as tulip mania bubble chain letter ponzi scheme panic crash and financial crisis immediately evoke images of frenzied and probably irrational speculative activity many of these terms have emerged from specific speculative episodes which have been sufficiently frequent and important that they underpin a strong current belief among economists that key capital markets sometimes generate irrational and inefficient pricing and allocational outcomes before economists relegate a speculative event to the inexplicable or bubble category however we must exhaust all reasonable economic explanations while such explanations are often not easily generated due to the inherent complexity of economic phenomena the business of economists is to find clever fundamental market explanations for events and our methodology should always require that we search intensively for market fundamental explanations before clutching the bubble last resort thus among the reasonable or market fundamental explanations i would include the perception of an increased probability of large returns the perception might be triggered by genuine economic good news by a convincing new economic theory about payoffs or by a fraud launched by insiders acting strategically to trick investors it might also be triggered by uninformed market participants correctly inferring changes in the distribution of dividends by observing price movements generated by the trading of informed insiders while some of these perceptions might

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

another look on earnings functions abstract in this paper we examine three different specifications of earnings functions based on human capital thurow s version of a segmented labor market and assignment theory using french data and considering education as an endogeneous variable contrary to hartog 1985 the human capital and assignment approaches are rejected in favor of the thurow s version of a segmented labor market

excess sensitivity of high income consumers using new transaction data i find considerable deviations from consumption smoothing in response to large regular predetermined and salient payments from the alaska permanent fund on average the marginal propensity to consume mpc is 25 for nondurables and services within one quarter of the payments the mpc is heterogeneous monotonically increasing with income and the average is largely driven by high income households with substantial amounts of liquid assets who have mpcs above 50 the account level data and the properties of the payments rule out most previous explanations of excess sensitivity including buffer stock models and rational inattention how big are these mistakes using a sufficient statistics approach i show that the welfare loss from excess sensitivity depends on the mpc and the relative payment size as a fraction of income since the lump sum payments do not depend on income the two statistics are negatively correlated such that the welfare losses are similar across households and small less than 0 1 of wealth despite the large mpcs

a dynamic model of expectations equilibrium abstract this paper describes a dynamic information adjustment process which achieves rational expectations equilibria for stochastic exchange environments an informational temporary equilibrium is an exchange equilibrium in which agents expectations are conditioned on their initial information and market data generated in previous informational temporary equilibria an equilibrium is a temporary equilibrium which reveals no further information this process leads to an equilibrium even when the data observed by agents is insufficient to permit the existence of an expectations equilibrium

earnings functions testing for the demand side abstract to analyze labor market phenomena one may simultaneously grade workers by education and jobs by level of difficulty and complexity human capital theory predicts earnings based on only worker quality thurow s version of a segmented labor market theory predicts that only the job level is relevant and the assignment theory predicts that both variables are relevant using three different data sets for the netherlands testing demonstrates convincingly the superiority of the assignment theory

long term care utility and late in life saving older wealth holders spend down assets much more slowly than predicted by classic life cycle models this paper introduces health dependent utility into a model with incomplete markets in which pre

preference for the workplace investment in human capital and gender we use a hypothetical choice methodology to estimate preferences for workplace attributes from a sample of high ability undergraduates attending a highly selective university we estimate that women on average have a higher willingness to pay wtp for jobs with greater work flexibility and job stability and men have a higher wtp for jobs with higher earnings growth these job preferences relate to college major choices and to actual job choices reported in a follow up survey four years after graduation the gender differences in preferences explain at least a quarter of the early career gender wage gap

the effect of short selling and borrowing on market prices and traders behavior this paper studies the influence of allowing borrowing and short selling on market prices and traders forecasts in an experimental asset market we verify although not statistically significantly so that borrowing tends to increase asset overvaluation and price orecasts while short selling tends to reduce these measures we also show that a number of results on beliefs traders types cognitive sophistication and earnings obtained in earlier experimental studies in which borrowing and short selling are not possible generalize to markets with borrowing and short sales

the effect of short selling on bubbles and crashes in experimental spot asset markets a series of experiments illustrate that relaxing short selling constraints lowers prices in experimental asset markets but does not induce prices to track fundamentals we argue that prices in experimental asset markets are influenced by restrictions on short selling capacity and limits on the cash available for purchases restrictions on short sales in the form of cash reserve requirements and quantity limits on short positions behave in a similar manner a simulation model based on delong et al 1990 generates average price patterns that are similar to the observed data asset market bubbles are persistent deviations of prices from fundamentals to the extent that bubbles exist they can influence investment levels and the allocation of capital and thereby have considerable economic effects in recognition of their potential importance the question of the existence and pervasiveness of bubbles has been a focus of extensive empirical investigation see e g shiller 1981 blanchard and watson 1982 diba and grossman 1988 and west 1988 these studies yield mixed results regarding the empirical relevance of bubble phenomena one source of the differences in conclusions may be that because the fundamental value of the assets cannot be observed tests of the presence of bubbles are joint tests with the particular specification of the process guiding the evolution of fundamentals also being tested the availability of short selling is widely believed to make bubble formation less likely one rationale for such a belief is the notion that the cause of asset market bubbles is a constraint on the ability of traders to speculate on future downward price movements see e g miller 1977 jarrow 1980 diamond and verrecchia 1987 or figlewski and webb 1993 in the absence of short sales traders may sell only the shares in their portfolios the availability of short sales relaxes this constraint in this paper we study empirically the effect of allowing short sales on both the incidence and magnitude of market bubbles we choose a setting in which the fundamental value of the asset is clearly and unambiguously defined and known at all times and bubbles typically occur namely we use the experimental environment that smith suchanek and williams 1988 introduce while

on the ingredients for bubble formation informed traders and communication bubbles in asset markets have been documented in numerous experiments most experiments in which bubbles occur feature a declining fundamental value this feature has been criticized for being atypical of real financial markets here we experimentally study other ingredients for bubble formation that are common in such markets namely the existence of inside information and communication among traders we find that bubbles and mirages can occur if these additional ingredients are present in particular the mere possibility that some traders are better informed than others can create bubbles surprisingly communication turns out to be counterproductive for bubble formation

liquidity vs wealth in household debt obligations evidence from housing policy in the great recession we exploit variation in mortgage modifications to disentangle the impact of reducing long term obligations with no change in short term payments wealth and reducing short term payments with no change in long term obligations liquidity using regression discontinuity and difference in differences research designs with administrative data measuring default and consumption we find that principal reductions that increase wealth without affecting liquidity have no effect while maturity extensions that increase only liquidity have large effects this suggests that liquidity drives default and consumption decisions for borrowers in our sample and that distressed debt restructurings can be redesigned with substantial gains to borrowers lenders and taxpayers

nonspeculative bubbles in experimental asset markets lack of common knowledge of rationality vs actual irrationality we report the results of an experiment designed to study the role of speculation in the formation of bubbles and crashes in laboratory asset markets in a setting in which speculation is not possible bubbles and crashes are observed the results suggest that the departures from fundamental values are not caused by the lack of common knowledge of rationality leading to speculation but rather by behavior that itself exhibits elements of irrationality much of the trading activity that accompanies bubble formation in markets where speculation is possible is due to the fact that there is no other activity available for participants in the experiment

the distribution of wealth and fiscal policy in economies with finitely lived agents we study the dynamics of the distribution of wealth in an overlapping generation economy with finitely lived agents and intergenerational transmission of wealth financial markets are incomplete exposing agents to both labor and capital income risk we show that the stationary wealth distribution is a pareto distribution in the right tail and that it is capital income risk rather than labor income that drives the properties of the right tail of the wealth distribution we also study analytically the dependence of the distribution of wealth of wealth inequality in particular on various fiscal policy instruments like capital income taxes and estate taxes and on different degrees of social mobility we show that capital income and estate taxes can significantly reduce wealth inequality as do institutions favoring social mobility finally we calibrate the economy to match the lorenz curve of the wealth distribution of the u s economy

higher order risk attitudes a review of experimental evidence abstract this paper reviews the recent but fast growing experimental literature on higher order risk attitudes after introducing the theoretical context we first review the basic evidence and empirical moderators of these risk attitudes we then discuss recent extensions to ambiguity time risk and multi attribute utility in the last part we review indirect evidence from applied economic decision tasks

asymmetric responses to income changes the payroll tax increase versus tax refund in 2013 abstract we examine low to middle income individuals responses to the 2013 payroll tax increase and their 2012 tax refund and find that consumption declines 90 cents per dollar lost to the tax increase and rises 60 cents per additional tax refund dollar

the spending and debt response to minimum wage hikes abstract immediately following a minimum wage hike household income rises on average by about 250 per quarter and spending by roughly 700 per quarter for households with minimum wage workers most of the spending response is caused by a small number of households who purchase vehicles furthermore we find that the high spending levels are financed through increases in collateralized debt our results are consistent with a model where households can borrow against durables and face costs of adjusting their durables stock jel d12 d14 d91 j38

margin short selling and lotteries in experimental asset markets the robustness of bubbles and crashes in markets for assets with finite lives is perplexing this paper reports the results of experimental asset markets in which participants trade two assets in some markets price bubbles form in these markets traders pay higher prices for the asset with lottery characteristics i e a claim on a large unlikely payoff however institutional design has a significant impact on deviations in prices from fundamental values particularly for an asset with lottery characteristics price run ups and crashes are moderated when traders finance purchases of the assets themselves and are allowed to short sell

the bull of wall street experimental analysis of testosterone and asset trading growing evidence shows that biological factors affect individual financial decisions that could be reflected in financial markets testosterone a chemical messenger especially influential in male

futures contracting and dividend uncertainty in experimental asset markets prices in experimental asset markets tend to bubble and then crash to dividend value at the end of the asset s useful life explanations for this phenomenon are 1 that participants cannot form reliable future price expectations or 2 dividend risk aversion we report the results of experiments to test these hypotheses in one experimental series a futures market is introduced so that participants can obtain information on future share prices in another series of experiments the per period dividend is known with certainty the futures market treatment reduced the bubble the certain dividend treatment had little effect on the character of bubbles with inexperienced traders copyright 1995 by university of chicago press

experimental evidence on varying uncertainty and skewness in laboratory double auction markets abstract we investigate the influence of skewness in asset fundamentals on asset prices under different states of uncertainty in double auction markets three different types of assets are considered risky assets ambiguous assets and assets where the fundamental value distribution can be learned by repeated sampling of realizations we show that market prices for skewed assets initially differ from those of non skewed assets for risky as well as for ambiguous assets because of learning the difference in market prices mostly disappears towards the end of trading when fundamentals are learned by experience sampling prices of all assets irrespective of skewness are very efficient from the beginning thus when probabilities are not described but experienced subjects are better able to estimate the fundamental value of an asset

momentum and overreaction in experimental asset markets abstract price volatility and investor overreactions are commonplace in experimental asset markets understanding the price dynamics in these markets is crucial for designing successful new trading institutions we report on a series of experiments to test the predictions of a new momentum model using a dynamical systems approach this model is then pitted against several standard models to predict prices as well as against expert human forecasters the comparative results suggest that each model has its advantages and regions of best performance overall the best predictive methods are the momentum model and expert human forecasters

do option like incentives induce overvaluation evidence from experimental asset markets abstract one potential reason for bubbles evolving prior to the financial crisis was excessive risk taking stemming from option like incentive schemes in financial institutions by running laboratory asset markets we investigate the impact of option like incentives on price formation and trading behavior the main results are that i we observe significantly higher market prices with option like incentives than linear incentives ii we further find that option like incentives provoke subjects to behave differently and to take more risk than subjects with linear incentives iii we finally show that trading at inflated prices is rational for subjects with option like incentives since it increases their expected payout

on efficient estimation with panel data an empirical comparison of instrumental variables estimators summary this paper attempts a replication of the cornwell and rupert 1988 study hereafter cr the cr study investigated the efficiency gains in a returns to schooling example by applying alternative sets of instrumental variables estimators for panel data regressions proposed by hausman and taylor 1981 amemiya and macurdy 1986 and breusch mizon and schmidt 1989 corrections on the cr data set lead to changes in the legitimate set of instruments when the time dummies are excluded from the regression and to much lower empirical gains in efficiency than those reported in cr if the time dummies are retained in the wage equation the experience coefficient is not estimable by the within regression and the empirical gains in efficiency from using the iv procedures are not limited to the timeinvariant education coefficient

the consumption response to positive and negative income shocks abstract a set of newly added questions in the 2011 2014 bank of england nmg consulting survey reveals that british households tend to change their consumption by significantly more in reaction to temporary and unanticipated falls in income than to rises of the same size household balance sheet characteristics such as high debt to income ratios and small liquidity buffers concerns about credit market access and higher subjective risk of lower future income account for a sizable share of this spending asymmetry our findings have important implications for predicting the response of aggregate consumption to expansionary and contractionary macroeconomic policies

thar she blows can bubbles be rekindled with experienced subjects we report 28 new experiment sessions consisting of up to three experience levels to examine the robustness of learning and error elimination among participants in a laboratory asset market and its effect on price bubbles our answer to the title question is yes we impose a large increase in liquidity and dividend uncertainty to shock the environment of experienced subjects who have converged to equilibrium and this treatment rekindles a bubble however in replications of that same challenging environment across three experience levels we discover that the environment yields a rare residual tendency to bubble even in the third experience session therefore a caveat must be placed on the effect of twice experienced subjects in asset markets in order for price bubbles to be extinguished the environment in which the participants engage in exchange must be stationary and bounded by a range of parameters experience including possible error elimination is not robust to major new environment changes in determining the characteristics of a price bubble jel c91 d83

experiments on electronic double auctions and abnormal trades the flash crash experienced by u s markets in may 2010 provided stark evidence that a large trade can have a powerful influence we explore the impact of an unusual trade on behavior in experimental bubbles markets we chose the experimental design proposed by smith suchanek and williams 1988 because replication shows it produces markets prone to mispricing after several rounds of trading our markets receive a large quantity order at an extreme price in a standard double auction bubble market pricing is unaffected by an abnormal order however with increased uncertainty about the underlying economic value of the asset over pricing weakens on arrival of a negative price shock

options short sales and market completeness this paper presents empirical evidence that trading in options contributes to both transactional and informational efficiency of the stock market by reducing the effect of constraints on short sales the significantly higher average level of short interest exhibited by optionable stocks supports the argument that options facilitate short selling we also find significant effects on option prices related to the short interest in the underlying stock we then present evidence that options also increase information efficiency earlier work that is replicated and extended here has suggested that short sale constraints cause stock prices to underweight negative information options appear to reduce that effect

a review of bubbles and crashes in experimental asset markets this paper discusses the literature on bubbles and crashes in the most commonly used experimental asset market design introduced by smith et al it documents the main findings based on the results from 41 published papers 3 book chapters and 20 working papers

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

asymmetric consumption effects of transitory income shocks we use the responses of a representative sample of dutch households to survey questions that ask how much their consumption would change in response to unexpected transitory income shocks positive or negative the questionnaire also distinguishes between relatively small income changes a one month increase or drop in income and relatively larger ones equal to three months income the results are broadly in line with models of intertemporal choice with precautionary saving borrowing constraints and finite horizons

on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth