Essays On Uncertainty Beliefs Updating And Portfolio Choice
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Essays On Uncertainty Beliefs Updating And Portfolio Choice
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Author : Kouamé Marius Sossou
language : en
Publisher:
Release Date : 2019
Essays On Uncertainty Beliefs Updating And Portfolio Choice written by Kouamé Marius Sossou and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This Thesis, consisting of three chapters, studies the effects of uncertainty on decision-making with portfolio choice applications. Chapter 1 studies how experimental subjects report subjective probability distributions in the presence of ambiguity characterized by uncertainty over a fixed set of possible probability distributions generating future outcomes. The level of distribution uncertainty varies according to the observed outcomes and the rules used by the subjects to update the distribution uncertainty. This chapter introduces several reporting and updating rules and our empirical analysis focuses on estimating the sample distribution of these rules. Two dominant reporting rules emerge from our analysis: we find that 65% of subjects report distributions by properly weighting the possible distributions using their expressed uncertainty, while 22% of subjects report distributions close to the distribution they perceive as most likely. Further, we find significant heterogeneity in how subjects update their expressed uncertainty. On average, subjects tend to overweight the importance of their prior uncertainty relative to new information, leading to ambiguity that is substantially more persistent than would be predicted using Bayes' rule. Counterfactual simulations suggest that this persistence will likely hold in settings not covered by our experiment. Uncertainty in financial markets is a natural consequence of investors being unaware of objective probabilities of asset returns. Chapter 2 highlights that ambiguity and loss aversion have opposite effects on financial markets and can coexist in the presence of uncertainty. This chapter addresses the normative question of the optimal portfolio evaluation frequency for an investor in order to minimize the effect of myopia, but to learn about the investment opportunities in the market. Towards this end, we present a new experimental design in which investors are asked to make repeated portfolio choices facing initial ambiguity concerning the distribution of returns of one of the available assets. We exploit exogenous variations in evaluation frequency along with time variation of probabilistic beliefs over the possible return distributions to jointly identify ambiguity, loss, and risk aversion along with rules investors use to update their ambiguity. Estimates from a structural model suggest seven different classes of investors. Investor class membership depends on loss aversion, ambiguity aversion as well as risk aversion preferences. Further, we find that at the aggregated level, investors are loss averse, ambiguity averse and they display risk aversion over gains and risk seeking over losses. We conclude our analysis by using our model estimates to predict the distribution of optimal evaluation periods for our sample. Our predictions suggest that approximatively 70% of investors prefer the highest possible evaluation period frequency. Finally, Chapter 3 investigates whether or not the discount factor of the elderly affects their portfolio choices. We estimate time preferences using inter-temporal choice data from a hypothetical experiment in a representative sample of American elders and a structural model of decision-making accounting for lifetime uncertainty. Our results indicate considerable heterogeneity in the elderly population. Moreover, we find that older people who display a higher discount factor are more likely to own retirement accounts and risky assets. These older people also tend to decrease the share of financial wealth held in safe assets and increase the share of financial wealth held in risky assets. These findings suggest that time preferences affect investment choices from safe assets toward other financial assets, all else being equal.
Essays On Mechanisms Underlying Belief Updating With Applications In Wisdom Of Crowds
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Author : Yunhao Zhang
language : en
Publisher:
Release Date : 2023
Essays On Mechanisms Underlying Belief Updating With Applications In Wisdom Of Crowds written by Yunhao Zhang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.
This dissertation consists of three chapters on understanding how people update their beliefs after learning about others' opinions and how we can leverage belief-updating to improve Wisdom of Crowds. In Chapter One, I propose a new Revealed Expertise (RE) algorithm that uses the "RE measure", which is a scaled amount of belief updating given numerical advice (i.e., the group mean), as a proxy for prior variance to better reflect the relative expertise of each agent in a crowd. The intuition, which I confirm both theoretically and empirically, is that those who are less swayed by the group mean tend to be more accurate in their initial judgment. Therefore, using inverse-variance weighting with the RE measures as the variance inputs outperforms the existing wisdom-of-crowds methods by over-weighting the more accurate initial judgments in the aggregation. Crucially, I demonstrate that while self-reported confidence reflects one's feeling of uncertainty given one's available information, advice-taking reveals the amount of information one has and has not taken into account in their initial judgment. Therefore, the RE algorithm is able to successfully identify the experts, even when self-reported confidence fails. In Chapter Two, I develop a boundedly rational model to characterize the relationship among stated confidence, uncertainty, expertise, and advice-taking. The semi-Bayesian belief-updating model I develop is able to reconcile two important empirical phenomena. First, I demonstrate that even though agents can state a high confidence (i.e., low first-order uncertainty), they may put a large weight on the advice in belief-updating if their estimate of their stated confidence is imprecise (i.e., large second-order uncertainty due to their lack of information). Second, I show that the distance effect (i.e., the weight on advice tends to decrease as the distance between the initial estimate and the advice increases), a widely documented empirical pattern in advice-taking, can be a consequence of people updating their beliefs following a semi-Bayesian updating heuristics given their cognitive limitation. In Chapter Three, I propose an experimental paradigm to examine the role of (preference-based) motivated reasoning in biased advice-taking. In an incentivized task assessing the accuracy of nonpolitical news headlines, we find partisan bias in advice-taking. We then adjudicate between two possible mechanisms for this biased advice-taking: a preference-based account, where participants 3 are motivated to take less advice from counter-partisans because doing so is unpleasant; versus a belief-based account, where participants sincerely believe co-partisans are more competent at the task (even though this belief is incorrect). To do so, we examine the impact of a substantial increase in the stakes, which should increase accuracy motivations (and thereby reduce the relative impact of partisan motivations). We find that increasing the stakes does not reduce biased advice-taking, hence no evidence to support the bias is driven by preference. Instead, in two follow-up experiments, we show evidence of the belief-based account being the main driver of the biased advice-taking.
Uncertainty In Economic Theory
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Author : Itzhak Gilboa
language : en
Publisher: Psychology Press
Release Date : 2004
Uncertainty In Economic Theory written by Itzhak Gilboa and has been published by Psychology Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with Business & Economics categories.
"This is the first collection to include chapters on this topic, and it can thus serve as an introduction to researchers who are new to the field as well as a graduate course textbook. With this goal in mind, the book contains survey introductions that are aimed at a graduate level student, and help explain the main ideas, and put them in perspective."--BOOK JACKET.
Handbook Of The Economics Of Risk And Uncertainty
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Author : Mark Machina
language : en
Publisher: Newnes
Release Date : 2013-11-14
Handbook Of The Economics Of Risk And Uncertainty written by Mark Machina and has been published by Newnes this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-11-14 with Business & Economics categories.
The need to understand the theories and applications of economic and finance risk has been clear to everyone since the financial crisis, and this collection of original essays proffers broad, high-level explanations of risk and uncertainty. The economics of risk and uncertainty is unlike most branches of economics in spanning from the individual decision-maker to the market (and indeed, social decisions), and ranging from purely theoretical analysis through individual experimentation, empirical analysis, and applied and policy decisions. It also has close and sometimes conflicting relationships with theoretical and applied statistics, and psychology. The aim of this volume is to provide an overview of diverse aspects of this field, ranging from classical and foundational work through current developments. Presents coherent summaries of risk and uncertainty that inform major areas in economics and finance Divides coverage between theoretical, empirical, and experimental findings Makes the economics of risk and uncertainty accessible to scholars in fields outside economics
Essays On The Impact Of Incomplete Information
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Author : Chuen Hwa Leon
language : en
Publisher:
Release Date : 2004
Essays On The Impact Of Incomplete Information written by Chuen Hwa Leon and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with categories.
Economic And Environmental Risk And Uncertainty
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Author : Robert Nau
language : en
Publisher: Springer Science & Business Media
Release Date : 2013-04-17
Economic And Environmental Risk And Uncertainty written by Robert Nau and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-04-17 with Business & Economics categories.
The 1980s and 1990s have been a period of exciting new developments in the modelling of decision-making under risk and uncertainty. Extensions of the theory of expected utility and alternative theories of `non-expected utility' have been devised to explain many puzzles and paradoxes of individual and collective choice behaviour. This volume presents some of the best recent work on the modelling of risk and uncertainty, with applications to problems in environmental policy, public health, economics and finance. Eighteen papers by distinguished economists, management scientists, and statisticians shed new light on phenomena such as the Allais and St. Petersburg paradoxes, the equity premium puzzle, the demand for insurance, the valuation of public health and safety, and environmental goods. Audience: This work will be of interest to economists, management scientists, risk and policy analysts, and others who study risky decision-making in economic and environmental contexts.
Strategic Asset Allocation
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Author : John Y. Campbell
language : en
Publisher: OUP Oxford
Release Date : 2002-01-03
Strategic Asset Allocation written by John Y. Campbell and has been published by OUP Oxford this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002-01-03 with Business & Economics categories.
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
The Elgar Companion To Economics And Philosophy
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Author : John Bryan Davis
language : en
Publisher: Edward Elgar Publishing
Release Date : 2005-01-01
The Elgar Companion To Economics And Philosophy written by John Bryan Davis and has been published by Edward Elgar Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005-01-01 with Business & Economics categories.
. . . there are many first-rate contributions here. Those contributions make this collection valuable especially to readers who are already knowledgeable about the various areas in which the interests of philosophers and economists overlap. Daniel M. Hausman, Journal of Economic Methodology The Elgar Companion To Economics and Philosophy is a very good read. Every library should buy it now. John King, History of Economics Review The volume collects articles surveying developments in such related fields as economic methodology, ethics, epistemology, and social ontology. Many of the articles are forward-looking, and as such constitute substantive and original (and at times provocative) contributions to the literature. The volume as a whole is a success; the editors are to be congratulated for their efforts. Bruce J. Caldwell, University of North Carolina, Greensboro, US This Companion is called economics and philosophy but actually it is about the philosophy of economics and all the great questions in the subject are here. The weather in the philosophy of economics has been stormy lately and the climate continues to this day to be unsettled. Will the storms soon settle down to give way to calmer days? Read this excellent collection of informative papers in the field to stimulate your own answer to that question. Mark Blaug, University of London and University of Buckingham, UK The Elgar Companion to Economics and Philosophy aims to demonstrate exactly how these two important areas have always been linked, and to illustrate the key areas of overlap. The Companion is divided into distinct parts, each of which highlights a leading area of scholarly concern: political economy conceived as social philosophy; the methodology and epistemology of economics; and social ontology and the ontology of economics. The contributors are well-known and distinguished authors from a variety of disciplines, who have been invited both to survey and to provide a personal assessment of current and prospective future states of their respective areas of philosophical interest. Academics and students who have an interest in economics and philosophy, political philosophy and the history of ideas will find this book of great appeal, as will researchers working in the field and readers interested in the nature of the discipline of economics.
Heterogeneity And Persistence In Returns To Wealth
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Author : Andreas Fagereng
language : en
Publisher: International Monetary Fund
Release Date : 2018-07-27
Heterogeneity And Persistence In Returns To Wealth written by Andreas Fagereng and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-07-27 with Business & Economics categories.
We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.
American Doctoral Dissertations
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Author :
language : en
Publisher:
Release Date : 1985
American Doctoral Dissertations written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1985 with Dissertation abstracts categories.