Risk-Seeking versus Risk-Avoiding Investments in Noisy Periodic Environments

We study the performance of various agent strategies in an artificial investment scenario. Agents are equipped with a budget, $x(t)$, and at each time step invest a particular fraction, $q(t)$, of their budget. The return on investment (RoI), $r(t)$, is characterized by a periodic function with different types and levels of noise. Risk-avoiding agents choose their fraction $q(t)$ proportional to the expected positive RoI, while risk-seeking agents always choose a maximum value $q_{max}$ if they predict the RoI to be positive ("everything on red"). In addition to these different strategies, agents have different capabilities to predict the future $r(t)$, dependent on their internal complexity. Here, we compare 'zero-intelligent' agents using technical analysis (such as moving least squares) with agents using reinforcement learning or genetic algorithms to predict $r(t)$. The performance of agents is measured by their average budget growth after a certain number of time steps. We present results of extensive computer simulations, which show that, for our given artificial environment, (i) the risk-seeking strategy outperforms the risk-avoiding one, and (ii) the genetic algorithm was able to find this optimal strategy itself, and thus outperforms other prediction approaches considered.Comment: 27 pp. v2 with minor corrections. See http://www.sg.ethz.ch for more inf

Land institutions and land markets

In agrarian societies land serves as the main means not only for generating a livelihood but often also for accumulating wealth and transferring it between generations. How land rights are assigned therefore determines households'ability to generate subsistence and income, their social and economic status (and in many cases their collective identity), their incentive to exert nonobservable effort and make investments, and often their ability to access financial markets or to make arrangements for smoothing consumption and income. With imperfections in other markets, the institutions governing the allocation of land rights and the functioning of land markets will have implications for overall efficiency as well as equity. The authors examine how property rights in land evolve from a situation of land abundance. They discuss factors affecting the costs and benefits of individual land rights and highlight the implications of tenure security for investment incentives. They also review factors affecting participation in land sales and rental markets, particularly the characteristics of the agricultural production process, labor supervision cost, credit access, the risk characteristics of an individual's asset portfolio, and the transaction costs associated with market participation. These factors will affect land sales and rental markets differently. Removing obstacles to the smooth functioning of land rental markets and taking measures to enhance potential tenants'endowments and bargaining power can significantly increase both the welfare of the poor and the overall efficiency of resource allocation. Drawing on their conceptual discussion, the authors draw policy conclusions about the transition from communal to individual and more formal land rights, steps that might be taken to improve the functioning of land sales and rental markets, and the scope for redistributive land reform.Banks&Banking Reform,Environmental Economics&Policies,Labor Policies,Municipal Housing and Land,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Municipal Housing and Land,Economic Theory&Research,Real Estate Development

The perception of obstacles to innovation. Multinational and domestic firms in Italy.

This paper looks at the perception of obstacles to innovation of both multinational enterprises (MNEs) and domestic firms located in Italy. Drawing on data from the firm-level Italian CIS3, we first explore to what extent innovative behaviours are both firm- (i.e. foreign- versus nationally-owned multinationals, MNEs versus single domestic firms) and region-specific. We then examine whether the perception of obstacles to innovation varies among types of firms and regions.obstacles to innovation, multinational firms, innovation processes, regional location

A cognitive perspective on learning, decision-making, and technology evaluations in organisations

This dissertation examines how firms’ selection of technological and R&D opportunities shape the performance of their innovation efforts. Managers select R&D investments in complex and uncertain environments where it is difficult to learn from past decisions. I examine this challenge using empirical and agent-based modelling methods and by focusing on three interrelated aspects: managers’ individual learning processes, the adaptation of mental representations in complex environments, and the role of distributed expertise in group evaluations. In the first chapter, I propose an alternative explanation to how managers learn from experience that does not involve feedback and that is thus applicable to contexts where learning from feedback is difficult. I test this novel learning mechanism, termed ‘representation learning’, by analysing a large proprietary dataset of patent evaluations and termination decisions made by managers at a Fortune 500 firm. The second chapter explores further implications for performance of representation learning by means of an agent-based model of representation and policy search in rugged landscapes. This study examines how different representation search strategies affect decision-makers’ adaptation in complex environments. Finally, the third chapter explores the performance of group evaluation processes when evaluators differ in the depth and breadth of their knowledge of the technologies being evaluated. This research contributes to management literature by shedding light on the cognitive processes underlying learning and decision-making in uncertain and complex environments. These findings also have practical implications for strategy research and practice concerning the management of uncertain R&D and technology investments.Open Acces

Disclosure Procedure

Securities disclosure is a human process. Each year, public companies collectively spend over fifteen million hours producing disclosures that undergird an equities market with tens of trillions in market capitalization. The procedures they follow in doing so affect whether their disclosures contain misstatements or omissions—errors that can cause trading losses for investors, and litigation for issuers. Yet despite the importance of the disclosures that firms produce, the literature says little about how they do it, including whether they are spending too much, too little, or just enough on their disclosure procedures. To fill that gap, this Article uses original surveys and interviews with in-house lawyers and accountants at S&P 1500 companies to give an institutional account of how disclosure is produced and how disclosure procedure affects firms and investors. In short, on a risk-adjusted basis, higher-quality procedures are likelier to produce higher-quality disclosures. That relationship promises social gains if procedures can be identified as higher- or lower-quality and firms adopt the higher-quality options. As a first step toward that promise, this Article compares S&P 1500 firms’ procedures and presents tentative evidence of divergence among them. It closes by explaining the need for firms to say more about their procedures in order to generate information that supports market-wide best practices

Screening and Information Asymmetry in Early-Stage Venture Capital Markets

This is an examination of early-stage capital markets among venture capital investors and entrepreneurs, and the role information asymmetry plays in influencing the strategies that market participants adopt. It explores the thesis that venture capital investors who operate in early-stage capital markets do so to attract desirable entrepreneurs, and thereby improve the quality of investment opportunities they are presented with. A combination of theoretical arguments and empirical research on venture capital investors frames the types of investors and the reasons they use to justify their operation in early-stage capital markets. An empirical study of entrepreneurs and their capital-sourcing decisions then elucidates the effect of various investor strategies on the decisions of entrepreneurs. This research suggests that venture capitalists are not homogeneous in their approach to this market, and these variations are due to differences in their ability to "screen" investment opportunities. Moreover, investors with particularly high skill will operate in this market to attempt to signal this quality to entrepreneurs, as successful operation in this market does convey private information about the investors skill. Yet, entrepreneurs do not value this signal. When selecting their capital providers, they pay little practical attention to the information this signal conveys. This research contributes to the extension of previous theoretical models of investor screening, by allowing heterogeneity in screening skill, and by developing a range of strategic alternatives that skilled investors can pursue, which are not evident in previous models. This research also contributes to an enhanced understanding of the role of signalling in financial markets with high information asymmetries, by developing a theoretical justification for the emergence of such signals, by demonstrating their formation in early-stage capital markets, and by examining their poor efficacy with respect to one of the target audiences (i.e., entrepreneurs). Finally, this research contributes a novel perspective to our understanding of how early-stage entrepreneurs evaluate potential venture capital investors, and the degree to which their own understanding of this is marred by poor introspection. Through these contributions, this research provides an improved understanding of key elements of the entrepreneurial process in relation to high-growth firms

Overvalued Equity and the Case for an Asymmetric Insider Trading Regime

This article argues for an asymmetric insider trading policy under which insider trading that decreases the price of an overvalued stock is generally permitted, but insider trading that increases the price of an undervalued stock is generally prohibited. Concluding that the net investor benefits of price-decreasing insider trading exceed those of price-enhancing insider trading, the article argues that an asymmetric insider trading regime likely represents the bargain that shareholders and corporate managers would strike if they were legally and practically able to negotiate an insider trading policy. Current insider trading doctrine would permit regulators to impose such an asymmetric insider trading policy as the default rule