The Impact of Interest Rate Risk on Bank Lending

In this paper, we empirically analyze the transmission of realized interest rate risk - the gain or loss in bank economic capital due to movements in interest rates - to bank lending. We exploit a unique panel data set that contains supervisory information on the repricing maturity profiles of Swiss banks and provides us with an individual measure of interest rate risk exposure net of hedging. Our analysis yields three main results. First, our estimates indicate that a year after a permanent 1 percentage point upward shock in nominal interest rates, the average bank of 2013Q3 would ceteris paribus reduce its cumulative loan growth by approximately 170 basis points. An estimated 28% of this reduction would be the result of realized interest rate risk exposure weakening the bank's economic capital. Second, due to the banks' heterogeneity in interest rate risk exposure, the effect of the shock would differ across institutions and could be redistributive across regions. Finally, bank lending seems to be mainly driven by capital rather than liquidity, suggesting that a higher capitalized banking system can better shield its creditors from shocks in interest rates

Spillovers of Prosocial Motivation: Evidence from an Intervention Study on Blood Donors

Spillovers of prosocial motivation can enhance the provision of public goods, and have implications for the cost-benefit analysis of policy interventions. We analyze a large-scale intervention among dyads of pre- registered blood donors. A quasi-random phone call provides the instrument for identifying endogenous and exogenous social interaction. The phone call has a strong effect on the recipient's propensity to donate. Between 40% and 44% of that behavioral impulse is transmitted within dyads due to motivational spillovers. This creates a significant social multiplier to policy interventions, with estimates ranging between 1.6 and 1.8. There is no evidence for exogenous social interaction

An Instrumented Apartment to Monitor Human Behavior: A Pilot Case Study in the NeuroTec Loft

For patients suffering from neurodegenerative disorders, the behavior and activities of daily living are an indicator of a change in health status, and home-monitoring over a prolonged period of time by unobtrusive sensors is a promising technology to foster independent living and maintain quality of life. The aim of this pilot case study was the development of a multi-sensor system in an apartment to unobtrusively monitor patients at home during the day and night. The developed system is based on unobtrusive sensors using basic technologies and gold-standard medical devices measuring physiological (e.g., mobile electrocardiogram), movement (e.g., motion tracking system), and environmental parameters (e.g., temperature). The system was evaluated during one session by a healthy 32-year-old male, and results showed that the sensor system measured accurately during the participant’s stay. Furthermore, the participant did not report any negative experiences. Overall, the multi-sensor system has great potential to bridge the gap between laboratories and older adults’ homes and thus for a deep and novel understanding of human behavioral and neurological disorders. Finally, this new understanding could be utilized to develop new algorithms and sensor systems to address problems and increase the quality of life of our aging society and patients with neurological disorders

Fatigue testing of three peristernal median sternotomy closure techniques

Failure of a sternotomy closure because of closure system fatigue is a complication that may result in dehiscence and put the individual at risk for serious complications. The purpose of this study was to assess the fatigue performance of three peristernal median sternotomy closure techniques (figure-of-eight stainless-steel wires, figure-of-eight stainless-steel cables, or Pectofix Dynamic Sternal Fixation [DSF] stainless-steel plates) in order to quantify the potential risk of fatigue failure of these devices when subject to cyclic loads in physiologically relevant loading directions

Prospect theory and tax evasion: a reconsideration of the Yitzhaki puzzle

The standard expected utility (EUT) model of tax evasion predicts that evasion is decreasing in the marginal tax rate (the Yitzhaki puzzle). Recent literature shows cases in which incorporating prospect theory (PT) does and does not overturn the Puzzle. In a general environment that nests both PT and EUT preferences, we provide a detailed study of how the elements of PT affect the Puzzle. PT does not always reverse the Puzzle, hence we give and interpret conditions for when it does and does not. When allowing for stigma and/or variable audit probability, PT reverses the Puzzle in the same way and with the same limitations as does EUT, if equally augmented

Measuring loss aversion under ambiguity: a method to make prospect theory completely observable

We propose a simple, parameter-free method that, for the first time, makes it possible to completely observe Tversky and Kahneman’s (1992) prospect theory. While methods exist to measure event weighting and the utility for gains and losses separately, there was no method to measure loss aversion under ambiguity. Our method allows this and thereby it can measure prospect theory’s entire utility function. Consequently, we can properly identify properties of utility and perform new tests of prospect theory. We implemented our method in an experiment and obtained support for prospect theory. Utility was concave for gains and convex for losses and there was substantial loss aversion. Both utility and loss aversion were the same for risk and ambiguity, as assumed by prospect theory, and sign-comonotonic trade-off consistency, the central condition of prospect theory, held

How do risk attitudes affect measured confidence?

We examine the relationship between confidence in own absolute performance and risk attitudes using two confidence elicitation procedures: self-reported (non-incentivised) confidence and an incentivised procedure that elicits the certainty equivalent of a bet based on performance. The former procedure reproduces the “hard-easy effect” (underconfidence in easy tasks and overconfidence in hard tasks) found in a large number of studies using non-incentivised self-reports. The latter procedure produces general underconfidence, which is significantly reduced, but not eliminated when we filter out the effects of risk attitudes. Finally, we find that self-reported confidence correlates significantly with features of individual risk attitudes including parameters of individual probability weighting

Overconfidence in Labor Markets

This chapter reviews how worker overconfidence affects labor markets. Evidence from psychology and economics shows that in many situations, most people tend to overestimate their absolute skills, overplace themselves relative to others, and overestimate the precision of their knowledge. The chapter starts by reviewing evidence for overconfidence and for how overconfidence affects economic choices. Next, it reviews economic explanations for overconfidence. After that, it discusses research on the impact of worker overconfidence on labor markets where wages are determined by bargaining between workers and firms. Here, three key questions are addressed. First, how does worker overconfidence affect effort provision for a fixed compensation scheme? Second, how should firms design compensation schemes when workers are overconfident? In particular, will a compensation scheme offered to an overconfident worker have higher-or lower-powered incentives than that offered to a worker with accurate self-perception? Third, can worker overconfidence lead to a Pareto improvement? The chapter continues by reviewing research on the impact of worker overconfidence on labor markets where workers can move between firms and where neither firms nor workers have discretion over wage setting. The chapter concludes with a summary of its main findings and a discussion of avenues for future research

Prospect theory, mitigation and adaptation to climate change

Climate change is one of the most pressing challenges in current environmental policy. Appropriate policies intended to stimulate efficient adaptation and mitigation should not exclusively rely on the assumption of the homo oeconomicus, but take advantage of well-researched alternative behavioural patterns. Prospect theory provides a number of climate-relevant insights, such as the notion that evaluations of outcomes are reference dependent, and the relevance of perceived certainty of outcomes. This paper systematically reviews what prospect theory can offer to analyse mitigation and adaptation. It is shown that accounting for reference dependence and certainty effects contributes to a better understanding of some well-known puzzles in the climate debate, including (but not limited to) the different uptake of mitigation and adaptation amongst individuals and nations, the role of technical vs. financial adaptation, and the apparent preference for hard protection measures in coastal adaptation. Finally, concrete possibilities for empirical research on these effects are proposed