Inflation Uncertainty and Interest Rates: Theory and Empirical Tests

This paper develops two models, one involving risk neutrality and the other risk aversion, which suggest that inflation uncertainty affects interest rates. Both models give rise to essentially the same interest rate equation for estimation. Empirical evidence supports the hypothesis that inflation uncertainty affects interest rates. Interpreted in terms of the risk neutral model, the empirical results suggest that inflation uncertainty has a negative impact on nominal interest rates and a positive impact on the expected real rate. If the results are interpreted in terms of the risk averse model, inflation uncertainty has a negative impact on nominal interest rates. The expected real rate is not of direct interest in a risk averse world. The results raise real questions about the use of the Fisherian definition of the real interest rate in situations when there is uncertainty about inflation rates. It is argued that even with risk neutrality the Fisherian definition of the real rate is not the appropriate concept upon which to base economic decisions if inflation uncertainty is present. The appropriate concept is an expected real rate which involves an adjustment for uncertainty. Moreover, if the world is risk averse, the expected real rate is not a relevant concept for economic decisions.

Uncertainty relations: An operational approach to the error-disturbance tradeoff

The notions of error and disturbance appearing in quantum uncertainty relations are often quantified by the discrepancy of a physical quantity from its ideal value. However, these real and ideal values are not the outcomes of simultaneous measurements, and comparing the values of unmeasured observables is not necessarily meaningful according to quantum theory. To overcome these conceptual difficulties, we take a different approach and define error and disturbance in an operational manner. In particular, we formulate both in terms of the probability that one can successfully distinguish the actual measurement device from the relevant hypothetical ideal by any experimental test whatsoever. This definition itself does not rely on the formalism of quantum theory, avoiding many of the conceptual difficulties of usual definitions. We then derive new Heisenberg-type uncertainty relations for both joint measurability and the error-disturbance tradeoff for arbitrary observables of finite-dimensional systems, as well as for the case of position and momentum. Our relations may be directly applied in information processing settings, for example to infer that devices which can faithfully transmit information regarding one observable do not leak any information about conjugate observables to the environment. We also show that Englert's wave-particle duality relation [PRL 77, 2154 (1996)] can be viewed as an error-disturbance uncertainty relation.Comment: v3: title change, accepted in Quantum; v2: 29 pages, 7 figures; improved definition of measurement error. v1: 26.1 pages, 6 figures; supersedes arXiv:1402.671

Conceptualising uncertainty in environmental decision-making: The example of the EU Water Framework Directive

The question of how to deal with uncertainty in environmental decision-making is cur-rently attracting considerable attention on the part of scientists as well as of politicians and those involved in government administration. The existence of uncertainty becomes particularly apparent in the field of environmental policy because environmental prob-lems are regarded as highly complex and long-term and because far-reaching changes have to be taken into account; moreover, the knowledge available to practitioners and policy makers alike is often fragmentary and not systemised. One key issue arising from this is the challenge to develop scientific decision support methods that are capable of dealing with uncertainty in a systematic and differentiated way, integrating scientific and practical knowledge. This paper introduces a conceptual framework for perceiving and describing uncertainty in environmental decision-making. It is argued that perceiv-ing and describing uncertainty is an important prerequisite for deciding and acting under uncertainty. The conceptual framework consists of a general definition of uncertainty along with five complementary perspectives on the phenomenon, each highlighting one specific aspect of it. By using the conceptual framework, decision-makers are able to re-flect on their knowledge base with regard to its completeness and reliability and to gain a broad picture of uncertainty from various standpoints. The theoretical ideas presented here are based on two empirical studies looking at how uncertainty is dealt with in the implementation process of the EU Water Framework Directive (WFD). The rather ab-stract differentiations are illustrated by a number of examples in the form of interview statements and excerpts from the WFD and the WFD guidance documents Impress, Wateco und Proclan. --uncertainty,probability,lack of knowledge,pure ignorance,environ-mental decision-making,EU Water Framework Directive (WFD)

Coherent States of Harmonic Oscillator and Generalized Uncertainty Principle

In this paper dynamics and quantum mechanical coherent states of a simple harmonic oscillator are considered in the framework of Generalized Uncertainty Principle(GUP). Equations of motion for simple harmonic oscillator are derived and some of their new implications are discussed. Then coherent states of harmonic oscillator in the case of GUP are compared with relative situation in ordinary quantum mechanics. It is shown that in the framework of GUP there is no considerable difference in definition of coherent states relative to ordinary quantum mechanics. But, considering expectation values and variances of some operators, based on quantum gravitational arguments one concludes that although it is possible to have complete coherency and vanishing broadening in usual quantum mechanics, gravitational induced uncertainty destroys complete coherency in quantum gravity and it is not possible to have a monochromatic ray in principle.Comment: 12 pages, no figur

Optimal regime switching under risk aversion and uncertainty

echnology adoption is key for corporate strategy, often determining the success or failure of a company as a whole. However, risk aversion often raises the reluctance to make a timely technology switch, particularly when this entails the abandonment of an existing market regime and entry in a new one. Consequently, which strategy is most suitable and the optimal timing of regime switch depends not only on market factors, such as the definition of the market regimes, as well as economic and technological uncertainty, but also on attitudes towards risk. Therefore, we develop a utility-based, regime-switching framework for evaluating different technology-adoption strategies under price and technological uncertainty. We assume that a decisionmaker may invest in each technology that becomes available (compulsive) or delay investment until a new technology arrives and then invest in either the older (laggard) or the newer technology (leapfrog). Our results indicate that, if market regimes are asymmetric, then greater risk aversion and price uncertainty in a new regime may accelerate regime switching. In addition, the feasibility of a laggard strategy decreases (increases) as price uncertainty in an existing (new) regime increases. Finally, although risk aversion typically favours a compulsive and a laggard strategy, a leapfrog strategy may be feasible under risk aversion provided that the output price and the rate of innovation are sufficiently high