Are Under- and Over-reaction the Same Matter? A Price Inertia based Account

Theories on under- and over-reaction in asset prices fall into three types: (1) they are respectively driven by different psychological factors; (2) they are driven by different types of investors; and (3) they reflect un-modeled risk. We design an asset market where information arrives sequentially over time and is revealed asymmetrically to investors. None of the three hypotheses is supported by our data: (1) Investors do not respond differently to public information and private information, and they do not behave in ways that are claimed by multiple psychological models; (2) no groups of investors are identified to drive under- or over-reaction in particular; (3) price deviation from expected payoff cannot be justified by risk metrics. We find that prices react insufficiently to news surprises, possibly because of cautious conservatism on the part of investors and under-reacting drifts outnumber overreacting reversals substantially. Contrary to common beliefs, we find that over-reaction is caused by slow adjustment of prices to surprises, similar to the cause of under-reaction. It is the degree of price inertia that drives the relative frequencies of under- and over-reaction. We propose a simple price inertia theory of under- and over-reaction: when information arrives sequentially over time, the market is characterized by a slow convergence toward intrinsic value; when news surprises are of the same signs, prices falls behind newly updated intrinsic values, manifesting under-reacting drifts; when news surprises change signs, prices again do not adjust quick enough to catch up with the new intrinsic values, manifesting a temporal pattern of overreacting reversals.Experimental finance, under-reaction, overreaction, behavior, price inertia, risk aversion

Polls and voting behavior: the impact of polling information on candidate preference, turnout, and strategic voting

textPublic opinion polls have become an integral part of the coverage of presidential elections. The story of the campaign is often told through the lens of the horse-race; candidates are leading or trailing, gaining or losing ground in their efforts to capture the White House. These polls, which provides important information to the public about the views of their fellow citizens, may also serve to shape the opinions and actions of that public, particularly in determining which candidate to support, whether or not to show up on Election Day, and whether to vote sincerely or strategically. Using both an analysis of a well-established national survey over the past ten elections and the results of a set of experiments done at the University of Texas, this study examines the effects of polling information on those decisions, keeping in mind that not all individuals will to react to the same information in the same way. The results of this study indicate that while polls do have an impact on the opinions and behaviors of those exposed to them, the effects themselves are minimal, and tend to largely reinforce existing predispositions. Those who have already chosen a candidate to support in an election tend to use the poll results to reinforce those preferences. Potential voters who are exposed to information suggesting a close election are more likely to participate, but only marginally so. Individuals who are considering whether or not to vote for a third party candidate do react to the strength of that candidate in the polls, but seem unimpressed by the strategic situation. Overall, this study indicates that the strong emphasis by the media on the relative popularity of the candidates does not seem to make a significant difference in the actions of individuals, and thus in the results of presidential elections.Governmen

Inclusion a company to responsible index in Poland – market reaction

Published in: CSR Trends. Beyond Business as Usual, Reichel J. (ed.), 2014, CSR Impact, Łódź, PolandCurrent development of corporate social responsibility concept and practice caused that investors pay more and more attention to social and environmental aspects while building their investment portfolio. This triggered a growth of socially responsible investment market and socially responsible stock indexes where companies that meet certain criteria related to CSR are listed. The Respect Index is the example of such indexes from Poland. The main goal of the presented paper is to check how the market reacts on an announcement about an inclusion of a company to the Respect Index. The Respect Index and the relatively young socially responsible investment market in Poland delivers a unique chance to explore described processes in a country with economy just two decades after the transition. We can observe whether few years only since the launch of the responsible index on Warsaw Stock Exchange have allowed Polish investors to learn this new market and react on new opportunities it creates

The Economics of Terrorism and Counter-Terrorism: A Survey (Part I)

This survey provides an in-depth analysis of existing research on the economic analysis of terrorism and counter-terrorist measures. First the existing evidence on the causes of terrorism is analyzed, then we consider the evidence of the consequences of terrorism and we demonstrate why it is important to regarding of the issue of counter-terrorism policy. Moreover the survey presents the existing knowledge on the interrelation between the economy and the issue of security and it incorporates analysis the level of knowledge about the causal chains between security and the economy. Also it focuses on perspective and methodologies from the discipline of economics but also refers to research from related disciplines (sociology, political science). It also assembles the knowledge on the impact of terrorism on the economy as reflected in macro-economic variables and its impact on specific sectors. Furthermore it assesses how potential an actual terrorist event determine consumer and producer behaviour, public policy, as well as terrorist responses to these policies. Finally a European perspective on the terrorism security annexes is discussed and here we analyze the causes of terrorism in Europe.

Self-Adjusting Finite State Machines: an approach to Real-Time Autonomous Behavior in Robots

In the Robotics industry, it is a frequent requirement that robots operate in real-time. The usual approach to this issue involves creating robots driven entirely by direct environmental input rather than complicated planning and decision-making AI. This approach means that the current state of the robot in relation to its environment exclusively determines the actions of the robot. In the simplest terms, this approach creates a Finite State Machine (FSM). Clearly, a standard FSM is completely pre-deterministic upon its creation. This is a drawback which immediately disallows the robot to cope with dynamic environments in an autonomous manner. This research suggests a solution to this problem, while still maintaining real-time performance of the FSM structure, through the development of a Self-Adjusting FSM (SA-FSM). A SA-FSM is a FSM with an additional module which adds, removes, and adjusts specific states of its FSM structure. By adjusting its FSM the SA-FSM will have the basis for autonomous attributes. It will be capable of coping with drastic changes in its environment by making necessary fundamental adjustments to its behavior. Through this mechanism, the process of learning can be implemented. In this regard, only the inherent learning/inference algorithms the SA-FSM employs to adjust its FSM determine the complexity of the behavior produced by a SA-FSM based robot

Neurocognitive mechanisms of reactions to second- and third-party justice violations.

The aim of the current study was threefold: (i) understand people's willingness to engage in either punishment of the perpetrator or compensation of the victim in order to counteract injustice; (ii) look into the differences between victims of and witnesses to injustice; (iii) investigate the different role played by social preference and affective experience in determining these choices. The sample tested here showed an equal preference for punishment and compensation; neuroimaging findings suggested that compensation, as opposed to punishment, was related to Theory of Mind. Partially supporting previous literature, choosing how to react to an injustice as victims, rather than witnesses, triggered a stronger affective response (striatal and prefrontal activation). Moreover, results supported the idea that deciding whether or not to react to an injustice and then how severely to react are two distinct decisional stages underpinned by different neurocognitive mechanisms, i.e., sensitivity to unfairness (anterior insula) and negative affectivity (amygdala). These findings provide a fine-grained description of the psychological mechanisms underlying important aspects of social norm compliance

Honesty on the Streets: A Natural Field Experiment on Newspaper Purchasing

A publisher uses an honor system for selling a newspaper in the street. The customers are supposed to pay, but they can also pay less than the price or not pay at all. We conduct an experiment to study honesty in this market. The results show that appealing to honesty increases payments, whereas reminding the customers of the legal norm has no effect. Furthermore, appealing to honesty does not affect the behavior of the dishonest. These findings suggest that some people have internalized an honesty norm, whereas others have not, and that the willingness to pay to obey the norm differs among individuals. In a follow-up survey study we find that honesty is associated with family characteristics, self-esteem, social connectedness, trust in the legal system, and compliance with tax regulations.honesty, internalized social norm, natural field experiment, survey

The macroscopic effects of microscopic heterogeneity

Over the past decade, advances in super-resolution microscopy and particle-based modeling have driven an intense interest in investigating spatial heterogeneity at the level of single molecules in cells. Remarkably, it is becoming clear that spatiotemporal correlations between just a few molecules can have profound effects on the signaling behavior of the entire cell. While such correlations are often explicitly imposed by molecular structures such as rafts, clusters, or scaffolds, they also arise intrinsically, due strictly to the small numbers of molecules involved, the finite speed of diffusion, and the effects of macromolecular crowding. In this chapter we review examples of both explicitly imposed and intrinsic correlations, focusing on the mechanisms by which microscopic heterogeneity is amplified to macroscopic effect.Comment: 20 pages, 5 figures. To appear in Advances in Chemical Physic