When is it important to know you've been rejected? A search problem with probabilistic appearance of offers

A problem that often arises in the process of searching for a job or for a candidate to fill a position is that applicants do not know if they will receive an offer from any given firm with which they interview, and, conversely, firms do not know whether applicants will definitely take positions they are offered. In this paper, we model the search process as an optimal stopping problem with probabilistic appearance of offers from the perspective of a single decision-maker who wants to maximize the realized value of the offer she accepts. Our main results quantify the value of information in the following sense: how much better off is the decision-maker if she knows each time whether an offer appeared or not, compared to the case where she is only informed when offers actually appear? We show that for some common distributions of offer values, she can expect to receive very close to her optimal value even in the lower information case, as long as she knows the probability that any given offer will appear. However, her expected value in the low information case (as compared to the high information case) can fall dramatically when she does not know the appearance probability ex ante but must infer it from data. This suggests that hiring and job-search mechanisms may not suffer from serious losses in efficiency or stability from participants hiding information about their decisions, unless agents are uncertain of their own attractiveness as employees or employers.National Science Foundation (U.S.) (contract ECS-0312921

The Economics of Internet Markets

The internet has facilitated the creation of new markets characterized by large scale, increased customization, rapid innovation and the collection and use of detailed consumer and market data. I describe these changes and some of the economic theory that has been useful for thinking about online advertising markets, retail and business-to-business e-commerce, internet job matching and financial exchanges, and other internet platforms. I also discuss the empirical evidence on competition and consumer behavior in internet markets and some directions for future research.internet, market, innovation, advertising, retail, e-commerce, financial exchanges

Theory and Applications of Robust Optimization

In this paper we survey the primary research, both theoretical and applied, in the area of Robust Optimization (RO). Our focus is on the computational attractiveness of RO approaches, as well as the modeling power and broad applicability of the methodology. In addition to surveying prominent theoretical results of RO, we also present some recent results linking RO to adaptable models for multi-stage decision-making problems. Finally, we highlight applications of RO across a wide spectrum of domains, including finance, statistics, learning, and various areas of engineering.Comment: 50 page

When herding and contrarianism foster market efficiency: a financial trading experiment

While herding has long been suspected to play a role in financial market booms and busts, theoretical analyses have struggled to identify conclusive causes for the effect. Recent theoretical work shows that informational herding is possible in a market with efficient asset prices if information is bi-polar, and contrarianism is possible with single-polar information. We present an experimental test for the validity of this theory, contrasting with all existing experiments where rational herding was theoretically impossible and subsequently not observed. Overall we observe that subjects generally behave according to theoretical predictions, yet the fit is lower for types who have the theoretical potential to herd. While herding is often not observed when predicted by theory, herding (sometimes irrational) does occur. Irrational contrarianism in particular leads observed prices to substantially differ from the efficient benchmark. Alternative models of behavior, such as risk aversion, loss aversion or error correction, either perform quite poorly or add little to our understanding

Successful and Unsuccessful Attacks: Evaluating the Stability of the East Asian Currencies

The key objective of our study is to re-examine again the stability of selected East Asian currencies. Had there been any other attacks on these currencies prior to their meltdowns in 1997? Equally important, have the currencies stabilized during the post-1997 crisis? To address these questions, we adopt the concept of exchange market pressure (EMP) index of Kaminsky, Lizondo, and Reinhart (1998). Due to non-normality of the statistical distribution of the EMP indices in general, this study applies the Extreme Value Theory (EVT) as proposed by Huisman, Koedijk, Kool, and Palm (2001). Lastly, we document events that arguably contribute to speculative attacks on these currencies.Currency Crisis; Exchange Market Pressure; Extreme Value Theory; East Asia.

When Herding and Contrarianism Foster Market Efficiency : A Financial Trading Experiment

While herding has long been suspected to play a role in financial market booms and busts, theoretical analyses have struggled to identify conclusive causes for the effect. Recent theoretical work shows that informational herding is possible in a market with efficient asset prices if information is bi-polar, and contrarianism is possible with single-polar information. We present an experimental test for the validity of this theory, contrasting with all existing experiments where rational herding was theoretically impossible and subsequently not observed. Overall we observe that subjects generally behave according to theoretical predictions, yet the fit is lower for types who have the theoretical potential to herd. While herding is often not observed when predicted by theory, herding (sometimes irrational) does occur. Irrational contrarianism in particular leads observed prices to substantially differ from the efficient benchmark. Alternative models of behavior, such as risk aversion, loss aversion or error correction, either perform quite poorly or add little to our understanding.Herding ; Informational Efficiency ; Experiments