the causes of preference reversal observed preference reversal cannot be adequately explained by violations of independence the reduction axiom or transitivity the primary cause of preference reversal is the failure of procedure invariance especially the overpricing of low probability high payoff bets this result violates regret theory and generalized nonindependent utility models preference reversal and a new reversal involving time preferences are explained by scale compatibility which implies that payoffs are weighted more heavily in pricing than in choice copyright 1990 by american economic association

green goods are they good or bad news for the environment evidence from a laboratory experiment on impure public goods green goods such as recycled paper stationary or carbon neutral flights provide increasingly popular examples of impure public goods motivated by theoretical treatments of green goods as a bundle of private and public characteristics in proportions fixed by the provider we design an experiment with two linked treatments to test how the presence of impure public goods affects behaviour towards public good causes we set parameters such that from a standard economic perspective the presence of the impure public good is behaviourally irrelevant in a treatment where the impure public good provides only small contributions to the public good we observe that on aggregate pro social behaviour is lower in the presence of the impure public good on the contrary in the treatment where the impure public good is more generous towards the public good component at the expense of private earnings individuals are unaffected in their behaviour we observe that impure public goods that are theoretically irrelevant and are mostly self interested may hinder pro social behaviour and look for explanations in social psychology such as the phenomenon of thoughtful anchoring motivated reasoning and reluctant altruism the results from this experiment question the role of green goods in enhancing environmentally friendly behaviours

non transitive choice event splitting effects or framing effects recent studies have examined possible causes of the robust empirical failure of the transitivity axiom of expected utility theory by pitting regret aversion against alternative explanations such as event splitting effects these tests show that cycles replicate when the latter are controlled but are sensitive to changes in problem representation the control for event splitting effects however does not rule out their contribution to cyclical choices in some circumstances an experiment is reported which investigates this possibility cyclical choices are observed that cannot be due to event splitting effects but appear attributable to within event and between act evaluations of decision problems plus framing effects

randomization devices and the elicitation of ambiguity averse preferences abstract in random incentive mechanisms agents choose from multiple problems and a randomization device selects a single problem to determine payment agents are assumed to act as if they faced each problem on its own while this approach is valid when agents are expected utility maximizers ambiguity averse agents may use the randomization device to hedge and thereby contaminate the data

does the preference reversal phenomenon necessarily contradict the independence axiom one of the most puzzling paradoxes in decision theory is the preference reversal phenomenon this phenomenon seems to contradict the transitivity axiom for a long time one of the cornerstones of utility theory this paradox is established whenever a decision maker prefers lottery x to lottery y but is willing to put a lower selling price on x than on y such experiments first reported by harold lindman 1971 and sarah lichtenstein and paul slovic 1971 were repeated by david grether and charles plott 1979 werner pommerehne et al 1982 and robert reilly 1982 although the later researchers improved the mechanism through which the selling price emerges they all found systematic reversals a new approach to this problem was developed by charles holt 1986 and edi karni and zvi safra 1987 from two different starting points these authors showed that the preference reversal phenomenon does not necessarily prove a violation of the transitivity axiom as it may contradict the independence axiom this implies that people do not maximize expected utility but in that case the preference reversal phenomenon becomes just another evidence against expected utility theory but not against the transitivity axiom these results have their own disadvantages although the independence axiom is not as fundamental as transitivity it is nevertheless very appealing on normative grounds of course the preference reversal phenomenon necessarily contradicts at least one of the assumptions of expected utility theory but empirical evidence shows that despite its normative appeal violations of the reduction of compound lotteries axiom may happen see for example joshua ronen 1971 and doug snowball and clif brown 1979 in this paper i therefore suggest a decision mechanism for the preference reversals lotteries which is transitive and satisfies the independence axiom but not the reduction axiom

lottery choice incentives complexity and decision time this paper reports the results of an experiment on lottery choice in which decision cost is measured as decision making time a simple decision cost model motivates this measurement and the experiment and predicts relationships between incentive mechanism manipulations and decision making time which are borne out in the experiment the decision cost model also suggests that decisions will change in the face of the incentive manipulations in the experiment this suggestion is borne out in a complex decision making environment but not in a simple one specification tests demonstrate that observed changes in subjects behavior are not merely due to changes in subject specific error variance one may conclude from this that the payoff dominance problem is a real issue in complex decision making experiments copyright 1993 by royal economic society

are preferences monotonic testing some predictions of regret theory in this paper the authors demonstrate that the assumption of regret aversion which has been invoked in regret theory to explain several well documented violations of expected utility theory also implies the existence of strict preferences between some stochastically equivalent actions and implies certain systematic violations of monotonicity the authors report an experimental test of these predictions they find that while choices between stochastically equivalent actions are entirely consistent with expected utility theory there is clear evidence of the monotonicity violations predicted by regret theory copyright 1992 by the london school of economics and political science

preference reversals and the independence axiom of all of the paradoxical patterns of behavior reported in laboratory experiments one of the most perplexing for decision theorists is the preference reversal phenomenon a subject in a preference reversal experiment is typically given a choice between a lottery with a high probability of winning a modest amount of money a p bet and a lottery with a low probability of winning a large amount of money a bet the lowest amount of money for which the subject would willingly sell either of these lotteries is also elicited the most common reversal is for a subject to choose the p bet over the bet but to put a higher selling price on the bet preference reversals were first reported by harold lindman 1971 and sarah lichtenstein and paul slovic 1971 in discussing the psychologists discovery of such reversals david grether and charles plott remark the inconsistency is deeper than mere lack of transitivity or even stochastic transitivity it suggests that no optimization principles of any sort lie behind even the simplest of human choices 1979 p 623 this paper offers a simple alternative explanation of documented preference reversals an explanation that does not require the abandonment of the transitivity assumption

do subjects remember the past in many experiments experimenters use the random lottery incentive mechanism and ask many questions to each subject that is at the end of the experiment just one of the questions is picked at random and the subject paid on the basis of their answer to this one question the idea is that subjects should separate the various questions and reply to each as if it were a separate question this procedure is methodologically sound if the subjects preferences obey expected utility eu theory which implies a form of separation but if they do not this incentive mechanism is open to criticism indeed many referees use this argument against the research they argue that subjects do not consider questions separately if the questions are revealed to the subjects one by one then the appropriate alternative hypothesis is that their behaviour evolves with the questions here this hypothesis is tested that the questions already answered affect the answers to the subsequent questions the analysis shows that

values elicited from open ended real experiments abstract the idea that preferences are only revealed by real incentives is deeply embedded in economists worldview consequently evidence from hypothetical experiments has not readily permeated economic thinking one method for determining whether hypothetical experiments provide useful information about preferences is to compare them to similar real goods experiments this study looks at responses elicited by three real experiments we examine the proportion of responses that meet a series of criteria that range from a broad appeal of plausibility to a narrow restriction based on quasi concavity of preferences we argue that these proportions are unreasonably low

reduction of compound lotteries with objective probabilities theory and evidence abstract the reduction of compound lotteries axiom rocl has assumed a central role in the evaluation of behavior toward risk and uncertainty we present experimental evidence on its validity in the domain of objective probabilities our battery of lottery pairs includes simple one stage lotteries two stages compound lotteries and their actuarially equivalent one stage lotteries we find violations of rocl and that behavior is better characterized by a source dependent version of the rank dependent utility model rather than expected utility theory since we use the popular 1 in k random lottery incentive mechanism payment procedure in our main test our experiment explicitly recognizes the impact that this payment procedure may have on preferences thus we also collect data using the 1 in 1 payment procedure we do not infer any violations of rocl when subjects are only given one decision to make these results are supported by both structural estimation of latent preferences as well as non parametric analysis of choice patterns the random lottery incentive mechanism used as payment protocol itself induces an additional layer of compounding by design that might create confounds in tests of rocl therefore we provide a word of caution for experimenters interested in studying rocl for other purposes such as the relationship between ambiguity attitudes and attitudes toward compound lotteries to carefully think about the design to study rocl payment protocols and their interaction with the preferences being elicited

determinants of world demand for u s corn seeds the role of trade costs the united states is a large net exporter of corn seeds seed trade including corn has been expanding but its determinants are not well understood this paper econometrically investigates the determinants of world demand for u s corn seeds with a detailed analysis of trade costs impeding exports flows to various markets trade costs include costs associated with distance tariffs and sanitary phytosanitary sps regulations imposed by foreign countries on u s corn seed exports sps policy information comes from the excerpt data base of usda aphis the analysis relies on a gravity like model based on an explicit specification of derived demand for seed by foreign corn producers a sps count variable is incorporated as a shifter in the unit cost of seeds faced by foreign users we use data from 48 countries and for the years 1989 to 2004 we find that all trade costs matter and have had a negative impact on u s corn seed exports tariffs matter most followed by sps measures and distance an extensive econometric investigation reveals that qualitative results are robust to specification changes but that sample selection bias is present in log linear specifications based on seed export levels and approximating zero trade data with a small positive number

tariff equivalent and forgone trade effects of prohibitive technical barriers to trade we derive a method to econometrically estimate the tariff equivalent and forgone trade effects of a prohibitive technical barrier to trade tbt based on wales and woodland s kuhn tucker approach to corner solutions in consumer choice the method overcomes the lack of observed data on bilateral trade flows and accounts for differentiated goods by place of origin we apply the derived random utility model to international trade in apples to identify the tariff equivalent of prohibitive phytosanitary barriers imposed by australia on potential imports of new zealand apples we estimate the forgone apple trade between the two countries the implied trade injury imposed by australia on new zealand and the welfare loss to australia the removal of the australian policy would induce net welfare gains around us 50 million annually for australia copyright 2009 oxford university press

tariff equivalents of nontariff measures the case of european horticultural and fish imports from african countries in the context of the partnership agreements between the european union eu and the african caribbean and pacific countries this study estimates ad valorem tariff equivalents of european food safety standards on imports of key horticultural and fish products from kenya tanzania uganda and zambia the study uses an extension of the price wedge method to account for imperfect substitution and factor endowment in monopolistic competition the estimated tariff equivalents are 55 and 98 for imports of fresh peas from zambia to the netherlands and the u k respectively they range from 39 to 64 for imports of green beans and avocados from kenya and from 63 to 270 for imports of frozen fish fillets in eu countries from the east african community we also observe large variations in tariff equivalents for the horticultural and fish products over time and eu importing countries 2012 international association of agricultural economists

economic theory of choice and the preference reversal phenomenon a reexamination in a recent issue of this review david grether and charles plott 1979 hereinafter referred to as g p presented a series of experiments that show that individual decisions are made in a manner inconsistent with standard preference theory this inconsistency can be illustrated by the following example individuals under suitable laboratory conditions first have a choice between a lottery with a high probability of winning a small sum of money the p bet probability bet and a lottery with a high stake but low probability of winning the m bet money bet after indicating a preference for one of the lotteries in the pair the same subjects are then asked to place a monetary value on each of the individual lotteries grether and plott found that a large number of participants stated a preference for the p bet in the first round but placed a higher value on the other lottery the m bet in the second round this behavior a preference reversal is inconsistent with the traditional statements of preference theory

financial development economic growth and banking sector controls evidence from india this paper uses newly collected data from the reserve bank of india to examine the effects of various types of banking sector controls on the process of financial deepening with the exception of a lending rate ceiling these controls are found to influence financial deepening negatively independently of the well known effect of the real interest rate exogeneity tests suggest that financial deepening and economic growth are jointly determined thus policies which affect financial deepening may also have an influence on economic growth the role of banking sector controls in the process of economic development has received considerable attention in the literature the traditional approach due to mckinnon i973 and shaw i973 postulates that government intervention in the pricing and allocation of loanable funds dubbed financial repression inhibits financial development by depressing real interest rates see

investigating the impacts of time delays on trade abstract time delays due to inefficient customs and administrative procedures have become a leading non tariff barrier ntb that restrict international trade and impair social welfare this paper investigates how time delays affect product quality product price trade flow and social welfare using data on the days it takes to clear customs in 96 countries we explore the impacts of time delays on product quality and price with different levels of perishability we find that longer time delays at the border would significantly decrease highly perishable agricultural products quality and price we also find that for highly perishable agricultural products improved and simplified customs delays would increase trade flows and social welfare of importing countries

how important are tariffs and nontariff barriers in international markets for fresh fruit international markets for agricultural products are often subject to a range of trade barriers and horticultural products are no exception this article examines the economic implications of tariffs and sanitary and phytosanitary sps regulations that are applied to global markets for fresh apples and fresh oranges we calculate regional level tariff rates and ad valorem equivalents for sps barriers following the price wedge approach a simulation model is developed and used to assess the price quantity and welfare implications of reducing tariffs removing sps barriers and removing sps barriers that have been identified as a specific trade concern stc by the world trade organization results suggest that a 36 reduction in global tariffs would lead to greater welfare gains than would the elimination of sps measures in apple markets however in orange markets we find that sps measures have much larger economic implications for producers and consumers here a 36 reduction in tariffs would lead to smaller overall welfare effects compared to removal of all sps measures and only slightly larger effects than those from removal of stcs alone

the impact of regulations on agricultural trade evidence from the sps and tbt agreements according to world trade organization rules countries may adopt regulations under the agreements on sanitary and phyto sanitary sps and technical barriers to trade tbt we analyze the structure of these measures in agricultural trade the inventory approach suggests that european countries have among the lowest coverage ratios of all oecd countries using a gravity equation we also estimate their stringency our results suggest that they significantly reduce developing countries exports to oecd countries but do not affect trade between oecd members furthermore european imports are more negatively influenced by sps and tbts than imports of other oecd countries

market experience eliminates some anomalies and creates new ones we report two experiments which investigate whether experience of decision making in repeated markets purges behaviour of preference reversals we investigate two behavioural mechanisms that may be shaping bids in repeated auctions a tendency to adjust bids towards previously observed market prices and a tendency to reduce bids following bad market outcomes we find little support for the former but strong support for the latter also whilst just enough market exposure eliminates the typical preference reversal phenomenon continued exposure fosters the mirror image anomaly therefore although market experience shapes behaviour in our experiments it does not generally promote consistency with standard preference theory

testing the rate of preference reversal in personal and social decision making classic preference reversal where choice and valuation procedures generate inconsistent preference orderings has rarely been tested in hypothetical health care treatment scenarios two studies the first non incentivised and the second incentivised are reported in this article in both studies respondents are asked to make decisions that affect themselves a personal decision making frame and those for whom they are responsible a social decision making frame the results show non negligible and systematic rates of preference reversal in both frames although these rates are slightly but non significantly lower in the incentivised condition moreover in both studies the rate of predicted preference reversal was somewhat higher in the social than in the personal decision making frame a finding that is explained by greater risk aversion when choosing treatment options for others than when choosing treatments for oneself

can financial infrastructures foster economic development in this paper financial infrastructures increase the efficiency of the banking sector they decrease the market power due to horizontal differentiation of the financial intermediaries lower the cost of capital increase the number of depositors and the amount of intermediated savings factors which in turn increase the growth rate and may help countries to take off from a poverty trap taxation finances financial infrastructures and decreases the private productivity of capital growth and welfare maximising levels of financial infrastructures are computed

choices involving uncertain probabilities abstract this paper contains an analytic and empirical component the analytic one examines how people should value information on probabilities versus payoffs according to expected utility theory it also examines under what conditions various generalized utility models such as subjective expected utility theory prospect theory and rank dependent utility entail testable predictions for preference for information the empirical component examines people s actual information preferences and to what extent they fit the various models after describing two experiments and their findings it is concluded that generalized utility models are unlikely to offer much insight into risky decision making

testing different stochastic specificationsof risky choice the harless camerer hc hey orme ho and random preference rp models of stochastic variation in choice under uncertainty are compared implications of these models including some that are independent of the deterministic theory with which they are combined are tested in an experiment in which participants respond to decision problems twice the hc model generally performs poorly the ho model predicts more violations of dominance than are observed while the rp model fails to account for those few violations which do occur additional regularities are observed which are inconsistent with all three models when combined with expected utility theory

existence and dynamic consistency of nash equilibrium with non expected utility preferences sufficient conditions for the existence of a nash equilibrium are given when preferences may violate the reduction of compound lotteries assumption rcla without rcla decision makers may not be indifferent between compound lotteries which have the same probabilities of final outcomes therefore the conditions depend on how players perceive the game whether they view themselves as moving first or second we also review conditions under which the equilibria will be dynamically consistent

measuring protection mission impossible abstract there seems to be some confusion between openness and protection measures in the international trade literature the aim of this paper is to bring together the state of the art in quantifying trade policy measures and for this reason we focus on the extent of the protection granted by policies rather than on the degree of openness of the economy given the considerable amount of literature that deals with these issues we will limit our review as follows on the one hand we focus on trade policies implemented at the border and therefore do not consider all the other possible public interventions influencing trade flows on the other hand we only take into account indexes that explicitly adopt a metric expressed in a scalar aggregate tariff and quota equivalent measures or an index in a closed interval we distinguish between indexes that aggregate across products same barrier for more products and indexes that aggregate across instruments more barriers for the same product finally in order to classify the large number of indexes covered in our review we propose a typology based on three categories incidence outcome and equivalence

alcohol and self control a field experiment in india this paper studies alcohol consumption among low income workers in india in a 3 week field experiment the majority of 229 cycle rickshaw drivers were willing to forgo substantial monetary payments in order to set incentives for themselves to remain sober thus exhibiting demand for commitment to sobriety randomly receiving sobriety incentives significantly reduced daytime drinking while leaving overall drinking unchanged i find no evidence of higher daytime sobriety significantly changing labor supply productivity or earnings in contrast increasing sobriety raised savings by 50 percent an effect that does not appear to be solely explained by changes in income net of alcohol expenditures

the common consequence effect testing a unified explanation of recent mixed evidence abstract the common consequence effect is perhaps the most investigated violation of expected utility theory and yet no single generalised expected utility model convincingly organises the experimental data this paper reports a test of a modified version of expected cardinality specific utility theory with boundary effects neilson w s 1992 economics letters 39 275 278 which can explain some recent mixed evidence without recourse to subjective probability weighting models the results do not convincingly support the boundary effect hypothesis and neither support the more usual probability weighting arguments but do indicate instability in preferences largely consistent with event splitting effects

experimental economics hard science or wasteful tinkering i take it that in raising the question what have we learned from experimental economics under the broader umbrella of controversy the point is not to solicit a catalogue of experimental findings but rather to signal the more pointed question are we learning anything at all or at least much that is very useful form experimentation in economics as a practising experimentalist i am convinced that experiments do have the potential to make a significant contribution to knowledge in economics this abstract was borrowed from another version of this item

preference reversals without the independence axiom the preference reversal phenomenon was believed to be inconsistent with the transitivity axiom of decision theory however recent theoretical papers have demonstrated that the preference reversals that were observed in earlier experiments could be explained by subject violations of the independence axiom or the compound lottery axiom therefore those preference reversals are not known to be inconsistent with generalization of expected utility theory that replace the independence axiom the present paper reports the results of experiments in which a substantial proportion of subject responses violate the asymmetry axiom these results are inconsistent with expected utility theory and its generalizations copyright 1989 by american economic association

inducing risk neutral preferences with binary lotteries a reconsideration abstract we evaluate the binary lottery procedure for inducing risk neutral behavior we strip the experimental implementation down to bare bones taking care to avoid any potentially confounding assumptions about behavior having to be made in particular our evaluation does not rely on the assumed validity of any strategic equilibrium behavior or even the customary independence axiom we show that subjects sampled from our population are generally risk averse when lotteries are defined over monetary outcomes and that the binary lottery procedure does indeed induce a statistically significant shift toward risk neutrality this striking result generalizes to the case in which subjects make several lottery choices and one is selected for payment

the combination of gravity and welfare approaches for evaluating nontariff measures this article explores the link between gravity and welfare frameworks for measuring the impact of nontariff measures first an analytical approach suggests how to combine a gravity equation with a partial equilibrium model to determine the welfare impact of nontariff measures second an empirical application focuses on the effects of a standard that caps antibiotic residues in crustaceans in the united states the european union canada and japan while the econometric estimation of the gravity equation reports a negative impact on imports welfare evaluations show that in most cases a stricter standard leads to an increase in both domestic and international welfare

mortgage choice as a natural field experiment on choice under risk data on approximately 280 000 borrowers from the uk survey of mortgage lenders are used to model choices between variable and fixed rate mortgages the choice is assumed to depend on three factors risk attitude interest rate expectations and individual discount rate the ordered probit model is used for estimation while taking account of a number of econometric issues including missing counterfactuals selectivity and endogeneity a large number of strong effects are found including higher income borrowers are less risk averse and have a lower discount rate and risk aversion rises with the amount borrowed providing evidence of increasing relative risk aversion

observing violations of transitivity by experimental methods the preference reversal phenomenon is usually interpreted as evidence of nontransitivity of preference but has also been explained as the result of the difference between individuals responses to choice and valuation problems the devices used by experimenters to elicit valuations and the random lottery selection incentive system this paper reports an experiment designed so that none of these factors could generate systematic nontransitivities yet systematic violations of transitivity were still found the pattern of violation was analogous with that found in previous preference reversal experiments and is consistent with regret theory copyright 1991 by the econometric society

further evidence of the impact of regret and disappointment in choice under uncertainty a preliminary experimental study of the relative impact of regret and disappointment on individual choice under uncert ainty is followed up and extended in various ways taken in conjuncti on with the earlier work the new results provide further evidence of the limitations of von neumann morgenstern expected utility theory a nd indicate the potential power of the alternative models discussed it is argued that there is sufficient weight of evidence to encourage further systematic investigation copyright 1988 by the london school of economics and political science

rational choice with status quo bias abstract motivated by the empirical findings concerning the importance of one s current situation on her choice behavior the main objective of this paper is to propose a rational choice theory that allows for the presence of a status quo bias and that incorporates the standard choice theory as a special case we follow a revealed preference approach and obtain two nested models of rational choice that allow phenomena like the status quo bias and the endowment effect and that are applicable in any choice situation to which the standard static choice model applies

understanding preference imprecision the term preference imprecision seems to have different meanings to different people in the literature one can find references to a number of expressions for example vagueness incompleteness randomness unsureness indecisiveness and thick indifference curves some of these are theoretical constructs some are empirical the purpose of this paper is to survey the various different approaches and to try to link them together to see if they are all addressed to the same issue and to come to some conclusions in the course of this survey we report on evidence concerning the existence of preference imprecision and its impact on theoretical and empirical work

measuring consumers willingness to pay at the point of purchase abstract economists psychologists and marketing researchers rely on measures of consumers willingness to pay wtp in estimating demand for private and public goods and in designing optimal price schedules existing market research techniques for measuring wtp differ in whether they provide an incentive to consumers to reveal their true wtp and in whether they simulate actual point of purchase contexts the authors present an empirical comparison of several procedures for eliciting wtp that are applicable directly at the point of purchase in particular the authors test the applicability of becker degroot and marschak s 1964 well known incentive compatible procedure for assessing the utility of lotteries to measuring consumers wtp in three studies the authors explore the reliability validity and feasibility of the procedure and show that it yields lower wtp estimates than do non incentive compatible methods such as open ended and double bounded contingent valuation they show experimentally t

testing new theories of choice under uncertainty using the common consequence effect a generalised common consequence problem is used to contrast the predictions of expected utility theory and several new theories of choice under uncertainty an experiment designed to test these predictions is reported systematic violations of expected utility theory are detected but although a consistent pattern emerges from the data it offers little support for any of the new theories the analysis is extended to test predictions which are unique to regret theory and significant regret effects are detected

compositional standards import permits and market structure the case of canadian cheese imports the imposition of cheese compositional standards by the canadian authorities has created divisions within the canadian dairy industry and has motivated criticisms from several of canada s trade partners the standards impose minimum limits on the percentage of casein coming from fluid milk we develop a theoretical model to investigate the implications of canada s compositional cheese standards while accounting for canada s trade policy we illustrate why a type of cheese that is not directly impacted by the standards might be the most affected we show that the standards can decrease the domestic demand for milk or the value of imports our empirical investigation identified breaks in the processes determining import unit values shortly before or shortly after the beginning of the implementation of the standards

indifference or indecisiveness choice theoretic foundations of incomplete preferences abstract a commonly held belief in economics is that an individual s preferences that are revealed by her choices must be complete this paper takes issue with this position by showing that one may be able to distinguish between indifference and indecisiveness of an agent upon observing her choice behavior we relax the standard weak axiom of revealed preferences warp and show that a potent theory of individual choice with and without risk can be founded on this weaker axiom when it is coupled with some other standard postulates the most notable features here are that an agent is allowed to be indifferent between certain alternatives and indecisive about others moreover an outside observer can identify which of these actually occur upon examining the observable choice behavior of the decision maker as an application we also show how our theory may be able to cope with the classical preference reversal phenomenon

the role of the state in financial markets this paper reexamines the role of the state in financial markets and identifies seven major market failures that provide a potential rationale for government intervention in practice government interventions in capital markets even in industrial countries have been pervasive the paper provides a taxonomy of those interventions with respect to both the objectives they serve and the instruments they employ there is a role for the government in financial markets but the success of government interventions has been mixed it is important that interventions be well designed the paper sets out principles for government regulatory interventions and applies them to prudential regulation it then examines three other areas of intervention directed credit finanical repression and competition policy and identifies circumstances in which some amount of financial repression may actually be beneficial

developments in non expected utility theory the hunt for a descriptive theory of choice under risk this article reviews recent developments in the economic theory of individual decision making under risk since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways considerable research effort has now been devoted to the project of developing a superior descriptive model following an overview of non expected utility theories which distinguishes between conventional and non conventional approaches the paper seeks to assess these alternative models in terms of empirical success using laboratory and field data and theoretical usefulness the closing sections reflect on some new directions emerging in this literature

how would compliance with dietary recommendations affect revenues for agricultural producers abstract nutritionists and other health experts have recommended a range of dietary plans and these often differ significantly although the usda food guides have been the most visible in the united states other dietary plans now are achieving greater public recognition our analysis extracts the nutrient recommendations for seven dietary plans and models the recommendations as shifts in demand for the nutrients demand shifts for nutrients are combined with nutrient composition shares to simulate the revenue implications in selected agricultural markets based on current consumption patterns in the united states we find that compliance with harvard s healthy eating pyramid would generate the greatest revenue gains for specialty crop producers in california

choice under uncertainty problems solved and unsolved ffifteen years ago the theory of choice under uncertainty could be considered one of the success stories of economic analysis it rested on solid axiomatic foundations it had seen important breakthroughs in the analytics of risk risk aversion and their applications to economic issues and it stood ready to provide the theoretical underpinnings for the newly emerging information revolution in economics 1 today choice under uncertainty is a field in flux the standard theory is being challenged on several grounds from both within and outside economics the nature of these challenges and of our profession s responses to them is the topic of this paper

how fast do economics converge the conventional approach to estimating how fast economics converge examines the cross economy relationship between the growth rate of per capita output over some time period and its initial level this approach produces consistent estimates only under highly restrictive assumptions which are violated by the data the paper develops an alternative approach that produces consistent estimates under weak assumptions this approach yields estimates substantially larger than those reported in the literature and also sufficiently large to be broadly consistent with the predictions of neoclassical growth theory

intra experimental income effects and risk aversion abstract harrison s 1986 modification of the bekker degroot and marshak 1964 mechanism for eliciting risk preferences is employed to test the hypotheses of expected utility theory with respect to changes in income increasing relative risk aversion and decreasing absolute risk aversion subjects in the laboratory are shown to exhibit such behavior

incentives in experiments a theoretical analysis experimental economists currently lack a convention for how to pay subjects in experiments with multiple tasks we provide a theoretical framework for analyzing this question assuming statewise mo

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

examining risk preferences under high monetary incentives experimental evidence from the people s republic of china several experimental sessions were conducted to elicit certainty equivalents for a sequence of lotteries involving real monetary outcomes the opportunity to conduct sessions in the people s republic of china afforded the ability to offer very large monetary incentives relative to subjects living costs in the highest payoff condition subjects earned three times their normal monthly revenue in the course of a two hour experiment results indicate a statistically significant impact of the level of monetary incentives on revealed risk preferences however even under extreme monetary incentives subjects demanded amounts well in excess of expected value for low probability gain prospects copyright 1992 by american economic association

tariff equivalent of technical barriers to trade with imperfect substitution and trade costs the price wedge method yields a tariff equivalent estimate of technical barriers to trade tbt an extension of this method accounts for imperfect substitution between domestic and imported goods and incorporates recent findings on trade costs we explore the sensitivity of this revamped tbt estimate to its key determinants substitution elasticity preference for home good and trade cost we use the augmented approach to investigate the recent japan u s apple trade dispute and find that removing the japanese tbt would yield limited export gains to the united states we then draw policy implications of our findings

does realism matter in contingent valuation surveys the importance of stressing the realism or policy relevance of a contingent valuation cv survey is commonly recognized by cv researchers this paper focuses on the relationship between the probability that a subject s response will result in real consequences and the subject s accurate reporting of willingness to pay results from experiments support the argument that efforts to make contingent valuation surveys real are important however our results also suggest that the connection between the survey and the likelihood of a payment must be rather powerful before surveys generate accurate reporting of willingness to pay for a public good

prospect theory and energy efficiency abstract investments in energy efficiency entail uncertainty and when faced with uncertainty consumers have been shown to behave according to prospect theory preferences are reference dependent and exhibit loss aversion and probabilities are subjectively weighted using data from a choice experiment eliciting prospect theory parameters i provide evidence that loss averse people are less likely to invest in energy efficiency then i consider policy design under prospect theory when there are also externalities from energy use a higher degree of loss aversion implies a higher subsidy to energy efficiency numerical simulations suggest that the impact of prospect theory on policy may be substantial

the trade and welfare impact of australian quarantine policies the case of pigmeat we analyze the trade and welfare impact of quarantine measures imposed by australia on imports of pigmeat in particular we account for changes to australia s pigmeat quarantine policy over time including those changes related to the recent resolution of a wto dispute between australia and the european union using a random utility model and applying it to corner solutions in import decisions tariff equivalents by major trading partner are estimated for the different pigmeat quarantine regimes implemented by australia during the period 1988 2009 the welfare impact on consumers producers and foreign exporters is computed using a partial equilibrium model calibrated on the econometric estimates the quarantine regimes have a strong effect on trade and welfare with a tariff equivalent above 113 of average real world prices over the period analyzed

lessons from a behavioral economics success story comment on theory and experiment what are the questions among the many challenges that smith forthcoming details one that stands out is that theory and experiments face an incompatibility in the following sense theorists propose models which implicitly assume that the situation being modeled is divorced from everything else the individual might encounter either in the past or in the future in essence when they describe the game they preclude consideration of anything outside of the rules experimentalists on the other hand cannot make this implicit assumption while they have taken great pains to construct experiments that reflect as closely as possible the games described by theorists and often these experimental procedures are exceedingly clever they cannot remove subjects pasts or futures consequently economic experiments can never test only the theory they are designed to test instead they must test the theory in conjunction with all of the social cultural and historical baggage that subjects bring with them smith of course is right and his paper provides a call for new research to address this problem there are several directions that this researchmight go one is for experimental economists to somehow refine their procedures to isolate the laboratory from the outside world this after all is the technique used in the natural sciences but one can questionwhether this can ever be achieved for the social sciences an alternative direction is for theorists to write models that do not isolate rational actors from the rest of the world where the first direction lets theorists hold fast and expect experimentalists to adjust the second direction does the opposite something between these two is probably the right answer and indeed such a coordinated approach in which theorists address newmodeling questions and experimentalists change their approach to testing theoretical models was successful in a different part of economics the study of behavior toward risk my purpose here is to drawon the lessons from this successful research agenda and use them to develop a newdirection for experimental work on games

exploring the consistency of higher order risk preferences this study measures higher order risk preferences and their consistency we explore the role of country differences the variation of stakes and the framing of lotteries we observe a robust dichotomous pattern of choice behavior in china in the usa and in germany the majority of choices are consistent with mixed risk aversion or mixed risk loving behavior we also find this pattern after a tenfold increase in the stakes finally our results reveal that this pattern is strengthened if the lotteries are displayed in compound rather than reduced form in a follow up study we explore potential explanations for this framing effect

protectionism versus risk in screening for invasive species abstract i examine the extent to which enforcement of a biosecurity import restriction us border inspections for foreign pests and diseases is used as a protectionist trade barrier the parameters of a structural model of border inspection are estimated using a detailed dataset documenting the outcome of us agricultural border inspections i find that inspections are conducted in a manner that places an implied welfare weight on domestic producers relative to consumers ranging from 1 to 1 63 i also find evidence that the inspection agency takes terms of trade into account when inspecting agricultural imports these results suggest that border inspections are used as a protectionist non tariff barrier

payoff dominance vs cognitive transparency in decision making i introduction there is a general question about how well laboratory markets work in eliciting true preferences given the low opportunity costs of making errors as in harrison 1989 vernon smith 1982 set out a series of conditions that must be adhered to if a laboratory market investigation is to provide insight into economic behavior in naturally occurring markets the opportunity cost question posed above is covered under smith s payoff dominance and reward saliency precepts for laboratory market experiments if the experimental setting is to elicit true preferences from the subjects the monetary payoffs in the experiment must be salient and dominate potential extraneous influences on subject behavior this paper reports on three series of experiments which employ the becker degroot marshak bdm mechanism to investigate the interaction between payoff dominance reward saliency and cognitive effort in the decision task the bdm mechanism is well suited to this task because it involves only individual choice is theoretically incentive compatible and offers a high degree of experimenter control over payoffs initial information and feedback on the results of decisions becker degroot and marschak 1964 introduced the following preference elicitation mechanism individuals state the most they would be willing to pay wtp 1 for a good then a random price is drawn from a distribution known to the individuals if the stated value is greater than or equal to the random price the individual buys the good at the randomly determined price otherwise the individual does not buy the good the bdm bidding mechanism can be shown to be incentive compatible the intuition is straightforward it is not in the individual s interest to understate true wtp if the random buying price falls between the stated wtp and the true wtp the individual has foregone a beneficial trade it is also not in an individual s interest to overstate true wtp if the random buying price is greater than the true value but less than the stated value the individual will be required to buy the good at a price greater than true wtp a more formal proof is easy to construct 2 let v the true value of one unit of the auction good b the bid submitted to purchase one unit of the good r the price randomly determined to be paid if the good is purchased p r probability that price r is randomly selected y sup o initial income u y utility a function of money income and the value of the good and e initial monetary balance provided in an experiment in the wtp version of the bdm auction the good is purchased if b greater than or equal to r with the subject paying only r and not purchased if b less than r in experiments using the bdm the subject cannot bid more than the experimental balance e so it must be that v less than e if the experiment is to be demand revealing assuming that subjects maximize expected utility they will submit bid b that maximizes eu integral of p r u y sup o e v r dr between limits b and 0 integral of p r u y sup o e dr between limits e and b the first integral describes the expected payoff for random prices r below the bid b and the second integral describes the expected payoff for random prices between the bid b and the maximum possible bid as limited by the balance e the maximum over b occurs when the derivative of eu with respect to b is zero in other words when deu db p b u y e v b u y e 0 so long as p b greater than 0 i e there is some probability the offered bid will be the price the above implies that the maximum occurs when b v in other words it is individually optimal to submit a bid b equal to one s true value v for the commodity although the bdm is incentive compatible in theory it is an empirical question whether it has this property in practice