learning to believe in sunspots a number of authors have shown that competitive economies may possess sunspot equilibria that is rational expectations equilibria in which purely extrinsic uncertainty affects equilibrium prices and allocations 2 such results demonstrate that it does not require a lack of faith in the rationality of market participants to believe that competitive markets may be subject to purely speculative fluctuations driven solely by expectations 3 the mere existence of sunspot equilibria as solutions to a system of marketclearing conditions however might not be judged sufficient to indicate that competitive markets with rational participants could ever be subject to speculative instability the sunspot equilibria represent states of affairs in which agents act differently in the case of different realizations of the sunspot variable and it is rational for each agent to do so but it might be thought unlikely that the beliefs of all the participants in the market could ever come to be coordinated so as to bring about an equilibrium of that kind it is rational to believe that sunspots convey information about future states of affairs once the economy is in a sunspot equilibrium but why would rational agents ever begin to believe in such a thing so as to create the conditions under which the belief is rational in order to address such a question one must go beyond the mere statement of the conditions for equilibrium and discussion of what states of affairs satisfy them one must specify an explicit dynamic process according to which the beliefs of agents adjust when out of equilibrium any exercise of this kind is necessarily unsatisfactory as there is no univocal meaning for the postulate of rational behavior outside of an equilibrium it may well be the case that

welfare with imperfect foreknowledge the case of risk aversion we study the use of discrete choice models in the context of recreation when there may be discrepancy between the anticipated ex ante and the experienced quality of site attributes due to imperfect information unlike previous literature on the topic we relax the assumption of risk neutrality adopting a model with quasi linear preferences we characterize the disparity between ex ante and ex post utility by decomposing expected utility into a term stemming from bias in beliefs and a component representing willingness to pay for reducing uncertainty in site attributes our results show that ex post corrections of welfare losses are attenuated by greater dispersion in beliefs about amenities

convergence to rational expectations in a stationary linear game this paper describes several learning processes which converge with probability one to the rational expectations bayesian nash equilibrium of a stationary linear game the learning processes include a test for convergence to equilibrium and a method for changing the parameters of the process when non convergence is indicated this self stabilization property eliminates the need to impose stability conditions on the economic environment convergence to equilibrium is proved for two types of self stabilizing learning mechanisms a centralized forecasting mechanism and a decentralized strategy adjustment process

value of parsimonious nutritional information in a framed field experiment abstract this study investigates consumers beliefs about the tastiness and healthiness of 173 food items in a framed field experiment designed to mirror a grocery shopping environment using data collected from 129 food shoppers in grenoble france demand models are estimated to determine how product choice is affected by price taste and perceived healthiness and how choices change with the provision of objective health information unlike previous studies focusing on relatively complex nutrition labels we elicit and convey health information using simple nutritional indices meant to lower search and cognitive processing costs the results indicate that consumers are willing to pay for tastier foods and for healthier foods particularly if the consumers have objective information as opposed to perceived subjective information on nutrient content the estimates suggest that the value of the type of nutritional information provided in the experiment is 0 98 per day the figure refers to the daily welfare benefits that arise from being able to make a set of choices that better reflect people s preferences by receiving the nutrient index information on all 173 food items versus not having such information

strategic interdependence in models of property rights the concept of strategic interdependence has opened a wide spectrum of explanation beyond the robinson crusoe economy this essay explores the implications of strategic interdependence for the theory of property rights and the new institutional economics schotter it attempts to clarify some of the linkages from institutional economics to micro and macroeconomic theory by considering how property institutions result from strategic interdependence confer payoffs to individual agents and reflect collective choices based on individual preferences

learning in mis specified models and the possibility of cycles abstract i study the problem of a monopolist maximizing a sum of discounted profits facing a linear demand curve whose slope and intercept are unknown i show that if the monopolist has a mis specified model i e if the true slope and intercept lie outside of the support of the monopolist s prior beliefs then actions and beliefs may cycle on every sample path this behavior is shown to be robust to perturbations in the prior true parameter and actions such behavior is not possible if the agent s model is correctly specified instead actions and beliefs necessarily converge

learning in expectation formation with applications to cattle and beef exports the paper briefly considers problems associated with rational expectations and formulates a more general model which allows for situations where economic agents do not immediately arrive at a fully rational solution it incorporates a learning mechanism whereby agents can provisionally adopt hypothetically derived expectations as a basis for comparison with the actual outturns utilizing the resultant past expectational errors as indicators of the likelihood of prospective future outcomes agents make explicit allowance a rational solution thus in situations where complete information is not freely available rationality would be approximated over time by means of a dynamic learning process which is founded on a firm empirical approach this essential empiricism requires that the problem be examined on the basis of direct observation of applied situations therefore the method is implemented and analysed with reference to irish foreign trade in fat cattle carcase and processed beef simultaneous equati

the ethical backlash of corporate branding past decades have witnessed the growing success of branding as a corporate activity as well as a rise in anti brand activism while appearing to be contradictory both trends have emerged from common sources the transition from industrial to post industrial society and the advent of globalization the examination of which might lead to a socially grounded understanding of why brand success in the future is likely to demand more than superior product performance placing increasing demand on corporations with regard to a broader envelop of socially responsible behavior directions for strategic and managerial options are suggested

actively learning about demand and the dynamics of price adjustment by observing the quantity demanded at particular prices a firm may learn about the parameters of its demand curve in such an environment price changes obstruct the learning process by inducing additional noise the authors paper constructs a dynamic model where a price setting firm endogenously controls the speed of learning the model provides a possible explanation for price inertia as a stable pricing policy allows the firm to learn more rapidly which improves future expected profits furthermore even in the long run learning continues to affect the firm s optimal price copyright 1990 by royal economic society

measuring welfare effects of product contamination with consumer uncertainty abstract a methodology is developed for measuring consumer welfare loss from market demand due to contamination when information is imperfect comparison of behavior before and after awareness permits calculation of the cost of ignorance which occurs when news of contamination is withheld or undiscovered for a time as well as when excessive reporting and exaggeration cause overreaction avoidance costs are also calculated for consumers who consume less than they would with perfect information due to risk aversion the methodology is applied to analyzing the heptachlor crisis which reduced milk consumption in hawaii by over 80

edmund phelps macroeconomist and social scientist edmund phelps helped change the way we think about macroeconomic theory and policy by introducing imperfect information and costly communication into the theory and deriving their implications for the dynamics of inflation and unemployment phelps treated macroeconomics as a social science whose subject matter is not just the choices people make but how people interact in groups his pioneering efforts in developing a formal theory of the coordination mechanisms governing interactions led the way to a new kind of macroeconomics one that was based on the interplay between the actions and expectations of individual actors instead of being based on postulated relationships between macro aggregates mainstream macroeconomics today projects a view of the economy that differs in important respects from phelps s original vision whereas he portrayed economic interactions as being problematical and uncertain leading to outcomes that intelligent people can adapt to but not anticipate much of macroeconomics now is about the representative agent content to interact with only himself and nature or perhaps at arm s length with the market through an unspecified agency that calculates equilibrium prices and executes preharmonized transactions and people are typically portrayed now as understanding completely up to stochastic error with known distribution all economic forces indeed phelps himself has changed his view on the significance of imperfect anticipation having adopted a structural approach to unemployment that attaches only momentary importance to disappointed expectations as a driving force even so macroeconomics today has a connection with microeconomic reasoning that it never did before phelps and a handful of others transformed the subject and many of the concepts that phelps himself introduced while making these contributions in the 1960s and 1970s remain in

why financial executives do bad things the effects of the slippery slope and tone at the top on misreporting behavior this paper employs theory of normal organizational wrongdoing and investigates the joint effects of management tone and the slippery slope on financial reporting misbehavior in study 1 we investigate assumptions about the effects of sliding down the slippery slope and tone at the top on financial executives decisions to misreport earnings results of study 1 indicate that executives are willing to engage in misreporting behavior when there is a positive tone set by the chief financial officer cfo kind attitude toward employees and non aggressive attitude about earnings regardless of the presence or absence of a slippery slope a negative tone set by the cfo does not facilitate the transition from minor indiscretions to financial misreporting in study 2 we find that auditors evaluating executives decisions under the same conditions as those in study 1 do not react to the slippery slope condition but auditors assess higher risks of fraud when the cfo sets a negative tone overall our results indicate that many assumptions about the slippery slope and tone at the top should be questioned we provide evidence that pro organizational behaviors and incrementalism yield new insights into the causes of ethical failures financial misreporting behavior and failures of corporate governance mechanisms

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

environmental valuation with imperfect information the case of the random utility model this paper considers welfare analysis with therandom utility model rum when perceptions ofenvironmental quality differ from objectivemeasures of environmental quality environmental quality is assumed to be anexperience good so that while perceptions ofquality determine choices ex postutility is determined by objective quality given this assumption i derive a measure ofthe welfare impact of changes in environmentalquality and i show how this new welfaremeasure differs from the traditional welfaremeasure developed by hanemann 1982 this newwelfare measure provides an approach tomeasuring the value of information aboutenvironmental quality within the framework ofthe random utility model

dynamic equilibrium in markets for perennial crops a dynamic equilibrium model for perennial crop markets is formulated price expectations are formed according to perfect foresight and both the age composition of the crop and the optimal rotation are determined endogenously the model is applied to the california alfalfa market the calculated long run equilibrium acreage is quite close to average acreage over the base period the results also exhibit cyclical fluctuations in acreage with a six percent coefficient of variation thus cyclical behavior can arise from technical characteristics of the production process as well as from imperfectly formed expectations or random exogenous shocks

imperfect knowledge and behaviour in the foreign exchange market this paper explores the consequences of imperfect knowledge for exchange rate dynamics within the monetary class of models the authors framework which they call the theories consistent expectations framework provides a particular formalization of a world in which agents use theories in order to look forward but in which these theories provide only qualitative knowledge rather than quantitative knowledge about the economy the authors find that as long as agents possess at least some degree of imperfect knowledge the monetary models of the exchange rate generate dynamics consistent with the behavior observed in the literature copyright 1996 by royal economic society

learning in a hedonic framework valuing brownfield remediation incomplete information in property value hedonic models can bias estimates of marginal willingness to pay mwtp using brownfield remediation as an application this article recovers hedonic values from a dynamic neighborhood choice framework that allows households to learn about brownfield contamination in a bayesian fashion before choosing where to live i find that ignoring learning yields nontrivial biases to the mwtp estimate this has important implications for hedonic valuation if agents are imperfectly informed estimates are used to calculate information s value had it been withheld from the public and to assess heterogeneity in information s value along site and homebuyer demographics

macroeconomics and a bit more reality macroeconomics in its widest sense is a topic which is too diverse to be usefully discussed in a single article i will therefore take a very narrow view of what might be included under this general title and focus my attention on my own main area of interest the development and use of large macro econometric models this is an area which has a long tradition and literature stemming form the pioneering work of tinbergen i937 and the cowles commission klein i950 an extensive survey of the development of modelling may be found in bodkin klein and marwah i99i macroeconometric modelling grew rapidly in importance during the late i950s and the i960s going on to achieve a very influential role inmacroeconomic policy making during the i970s its failure to deliver the detailed economic control which it had seemed to promise then led to a barrage of attacks ranging from disillusion and sceptiscism on the part of policy makers to detailed and well argued acadeinic criticism of the basic methodology of the approach perhaps the most powerful and influential of these academic arguments came from sims i980 in his article macroeconomics and reality sims argued on three quite separate grounds against the basic process of model identification which lies at the heart of the cowles commission methodology firstly that economic theory gives rise to identification restrictions which are typically more complex than those traditionally applied in macroeconometric models in particular he said that theory normally implies complex cross equation restrictions which require system estimation and which cannot be imposed on a single equation basis secondly that traditional identification conditions are often met simply because of the presence of dynamics in the models sims argued that this identification is spurious and technically invalid as purely dynamic terms cannot help in structural identification in the conventional sense finally he said that the importance of expectations effects and the interaction of policy regimes and agents expectations make identification very difficult sims argued that any one of these problems would form a challenging but feasible research agenda but that doing all of these at once would be a programme which is so challenging as to be impossible in the short run he then proposed a methodology based on vector auto regressive var models

sorting over flood risk and implications for policy reform abstract do individuals sort across flood risk this paper applies a boundary discontinuity design to a residential sorting model to provide novel estimates of sorting across flood risk by race ethnicity and income we find clear evidence that low income and minority residents are more likely to move into high risk flood zones we then highlight the overall and distributional implications of proposed price and information reforms to the u s national flood insurance program while such reforms are likely welfare increasing overall heterogeneous behavioral responses yield significant distributive effects that also alter the composition of residents in harm s way

leading by example values based strategy to instill ethical conduct years of research clearly shows that relying on traditional organizational power bases is not effective when companies want to promote business ethics and performance it is not only that the use of legitimate power to establish ethics codes and coercive power to punish employees who do not comply does not work this study based on a multi method research approach in the retail industry indicates that the classic iron fist leads to unethical business values and lower service performance but there is a light at the end of the tunnel for forward looking managers the ethical attitudes and behaviors of employees within international organizations is a dynamic variable that is possible to change by the use of values based leadership our extensive study of a large grocery store chain owned by a multinational corporation indicates that managers who lead by example will boost team values and commitment

learning and convergence to a full information equilibrium are not equivalent support from the spanish ministry of education through grants dgicyt pb90 0132 and pb93 0679 is gratefully acknowledged further support for jun from the cirit generalitat de catalunya is also acknowledged

e equilibria and adaptive expectations output and inflation in the lbs model abstract this paper examines issues of convergence the variability of the dynamic paths and end value outcomes of output and inflation in the london business school lbs macromodel where adaptive learning schemes are used to form expectations of future variables first we examine the sensitivity of the outcomes from an exogenous oil price shock to alternative formulations of the adaptive expectations scheme the results suggest that convergence is not certain for ad hoc specifications of the expectations rule but that where solutions do exist for a range of empirically estimated rules the results show a sufficient degree of similarity particularly for output to suggest more than weak possibly strong e stability nonetheless the dynamic paths for output and inflation differ significantly we then focus on one simple expectations rule and test the variability of model outcomes when the associated hyperparameters differ in some cases this leads to no convergence but where a stable region is found the output and inflation results differ markedly both for the dynamics and for the end values therefore the speed of learning as well as the expectations rule matters for the output and inflation paths

stated and revealed preferences for organic and cloned milk combining choice experiment and scanner data the u s food and drug administration s recent announcement that milk from cloned cows is as safe to drink as that from conventionally bred cows prompted interest among farmers food retailers and regulators in the market impacts of the introduction of milk from clones because milk from cloned animals is not currently labeled in the market we utilized a stated preference experiment to determine consumer preferences for the attribute but also sought to determine whether the survey based choices were consistent with people s revealed preferences given by scanner data our analysis indicates that a pooled model combining stated and revealed preference data exhibits overall better out of sample prediction performance than either data set used alone results from the pooled model indicate that consumers are willing to pay large premiums to avoid milk from cloned cows an amount that is over three times that for organic or rbst free milk the results are used to calculate the value of a mandatory labeling program

genetic algorithm learning and the cobweb model this paper presents the cobweb model in which competitive firms in a market for a single good use a genetic algorithm to update their decision rules about next period production and sales the results of simulations show that the genetic algorithm converges to the rational expectations equilibrium for a wider range of parameter values than other algorithms frequently studied within the context of the cobweb model price and quantity patterns generated by the genetic algorithm are also compared to the data of experimental cobweb economies it is shown that the algorithm can capture several features of the experimental behavior of human subjects better than three other learning algorithms that are considered

perceptions versus objective measures of environmental quality in combined revealed and stated preference models of environmental valuation abstract this study examines perceptions and objective attribute measures in discrete choice models of recreation site choice behavior these forms of attribute measurement are examined in individual and combined revealed preference stated preference models our results suggest that the model based on perceptions slightly outperforms the models based on objective attribute measures however issues such as the definition of the choice set and the measurement of welfare present significant challenges when using perceptions data

pricing efficiency and information use in risky markets information has economic value if it helps estimate the value of something both individuals and society at large are interested in the extent to which information about an object s value is contained in its market price apart from distributional issues society s interest is that price guide resource allocation so as to maximize value weighted production prices that would induce such efficient resource use are themselves efficient the purpose of the present paper is to distinguish various notions of an efficient price and to discuss problems in the assessment and achievement of pricing efficiency emphasis is placed on the information content and time domain of prices

changing beliefs and systematic rational forecast errors with evidence from foreign exchange this paper addresses a new interpretation to the appearance in the early 1980s of systematic errors in forecasting the dollar exchange rate following a change in the process of a fundamental variable market participants revise their beliefs about the process using bayes rule since the market does not immediately recognize the change forecast errors are on average wrong during a period when the market is rationally learning for conservative parameter values the learning behavior of the dollar exchange rate in the early 1980s appears consistent with about half of the dollar s underprediction implied by the forward market copyright 1989 by american economic association

the value of a rational expectations forecast in a risky market a theoretical and empirical approach the central focus of this paper is to develop an easily computable money metric of an agent s willingness to pay for information under risk to extend this concept to the market and to demonstrate its application in a simple twoequation econometric model of the u s fed cattle market the paper draws on previous contributions to the theory of competitive firm under price uncertainty namely rothschild and stiglitz sandmo and more recently pope 1978 1980 and pope chavas and just the latter contributions provide insight into the econometric application of the theory and into the validity of producer surplus measures of firm welfare under risk the conceptual approach presented in this paper facilitates empirical application for a restricted class of utility functions it is shown that the money metric of an agent s willingness to pay for additional information can be computed from the firm s risk averse supply or factor demand function while other studies e g hayami and peterson freebairn decanio have derived welfare estimates of the value of a fore

learning through short run macroeconomic forecasts in a micro to macro model abstract firms in the swedish micro to macro model moses learn about their environment through internal adaptive expectations and through short run external forecasts produced by statistical bureaus the statistical bureaus apply different macroeconomic models that they estimate on data generated by moses firms are learning about their degree of trust in the forecasts of statistical bureaus using bayesian rules in our experiments with learning through external forecasts firms are either forced to use only one source of macroeconomic information or allowed to choose between them with these experiments we can simulate a more or less centrally controlled economy experiments demonstrate that the more of variety of sources of information allowed the better macroeconomic performance

forecasting dynamics and convergence to market fundamentals evidence from experimental asset markets abstract subjects trade shares of a fictitious asset in a computerized double auction market and submit one period ahead forecasts of the mean contract price on average the predictions of the rational expectations hypothesis are not supported and forecasts tend to be both biased and inconsistent with the specification of the process which would generate prices in a rational expectations equilibrium nevertheless an empirical analysis of agents forecasting dynamics indicates that learning does occur and that agents forecasts evolve in a direction consistent with a rational expectations equilibrium

the causes and consequences of wal mart s growth wal mart is the largest company in the world yet little is known about its economic impact this essay discusses what is known about wal mart s competitive advantage and its economic impact on local communities as well as the national and global economy and highlights the open questions to be addressed by future research

semi rational expectations and exchange rate dynamics abstract the rational expectations hypothesis reh asserts that on average the economic agents are accurate in predicting future economic developments the paper demonstrates however that in a world of costly information individual rationality may result in consistent and persistent forecasting biases a distinction is drawn between perfect foresight or efficient forecasting which is consistent with the reh and myopic perfect foresight which is the profit maximizing and thus the rational one from an individualistic point of view even though the latter may result in persistently biased forecasting these concepts are illustrated in a model of exchange rate dynamics which introduces myopic or semi rationality into dornbusch s familiar model