Experimental Investigation of Percieved Risk in Random Walk Processes

The hypothesis that, on average, people accurately estimate probabilities in random walk processes is experimentally investigated.Individuals are confronted with a process that starts with $X, and in every stage either goes up or down by$1, with probabilities p and 1 - p respectively.For different values of p, individuals were asked to estimate what is the chance that after 10 stages the system will be at a point higher than or equal to $X.Systematic mistakes in estimations were observed.In particular, estimations were centered around the stage-by-stage probability (p) rather then around the actual probability. Implication of this result to random walk processes in finance is considered.random walks;risk

How Certain are Dutch Households about Future Income? An Empirical Analysis

The growing literature on precautionary saving clearly indicates the need for measurement of income uncertainty. In this paper we empirically analyze subjective income uncertainty in the Netherlands. Data come from the Dutch VSB panel. We measure income uncertainty directly by asking questions on expected household income in the next twelve months. First, we describe our data and compare a measure of income uncertainty with corresponding studies conducted in the US and Italy. Second, we investigate the relationship between the measure of income uncertainty and some household characteristics. Controlling for information on expected changes, we find strong relationships between labor-market characteristics and the subjective income uncertainty as reported by the heads of households.subjective information;income expectations;income uncertainty

Family labor supply and proposed tax reforms in the Netherlands.

This paper presents a discrete choice static neo-classical labor supply model for married or cohabiting couples in the Netherlands. The model simultaneously explains the participation decision and the desired number of hours worked. Due to its discrete nature, institutional details of the tax system can be fully incorporated. The model is estimated using Dutch cross-section data. The results are used to simulate the first order labor supply effects of several proposed reforms of the Dutch income tax system. In particular, it is shown that some of the proposed reforms would have a negative effect on the number of married females who prefer a small part-time job. This pitfall is avoided in the proposal that has gone to Parliament.

Expected and realized income changes: Evidence from the Dutch socio-economic panel

Income expectations play a central role in household decision making. In the life cycle model for example, consumption and savings decisions reflect expectations of future income. In empirical applications where direct information on expectations is not available, it is usually assumed that expectations are rational, and reflected by observed future realizations. In this paper, we analyze direct subjective information on expected changes of household income in one panel wave of Dutch families. First, we describe these data and investigate how the expectations can be explained by, among other variables, income changes in the past. Second, we combine these data with information on realized income changes in the next panel wave, and analyze the dierences between expected and realized changes. We find that, on average, households underestimate their future incomes signiantly. In particular, this holds for those families whose income has fallen in the past.Household Economics;Decision Making;Household Income;microeconomics

Expected and realized income changes: Evidence from the Dutch socio-economic panel.

Income expectations play a central role in household decision making. In the life cycle model for example, consumption and savings decisions reflect expectations of future income. In empirical applications where direct information on expectations is not available, it is usually assumed that expectations are rational, and reflected by observed future realizations. In this paper, we analyze direct subjective information on expected changes of household income in one panel wave of Dutch families. First, we describe these data and investigate how the expectations can be explained by, among other variables, income changes in the past. Second, we combine these data with information on realized income changes in the next panel wave, and analyze the differences between expected and realized changes. We find that, on average, households underestimate their future income changes significantly. In particular, this holds for those families whose income has fallen in the past.

Family Labor Supply and Proposed Tax Reforms in the Netherlands

This paper presents a discrete choice static neo-classical labor supply model for married or cohabiting couples in the Netherlands. The model simultaneously explains the participation decision and the desired number of hours worked. Due to its discrete nature, institutional details of the tax system can be fully incorporated. The model is estimated using Dutch cross-section data. The results are used to simulate the first order labor supply effects of proposed reforms of the Dutch income tax system. In particular, it is shown that some of the proposed reforms would have a negative effect on the number of married females who prefer a small part-time job. This pitfall is avoided in the final proposal which has gone to parliament.

On income expectations and other subjective data:A micro-econometric analysis

Abstract: This thesis focuses on subjective data, in particular, answers to questions on income growth expectations. The emphasis is on the reliability and usefulness of subjective information. The data are from the Socio-Economic Panel (SEP), which is administered by Statistics Netherlands (CBS) and the VSB panel, which has been devised by researchers at CentER for Economic Research at Tilburg University. Using the panel nature of the SEP, expectations about income growth were compared with corresponding realizations. In addition to the empirical analyses of income growth expectations and uncertainty about future income, attention was paid to some methodological aspects of ordered categorical data.

On Income Expectations and other Subjective Data: A Micro-Econometric Analysis.

Abstract: This thesis focuses on subjective data, in particular, answers to questions on income growth expectations. The emphasis is on the reliability and usefulness of subjective information. The data are from the Socio-Economic Panel (SEP), which is administered by Statistics Netherlands (CBS) and the VSB panel, which has been devised by researchers at CentER for Economic Research at Tilburg University. Using the panel nature of the SEP, expectations about income growth were compared with corresponding realizations. In addition to the empirical analyses of income growth expectations and uncertainty about future income, attention was paid to some methodological aspects of ordered categorical data.

Relating Question Type to Panel Conditioning: A Comparison between Trained and Fresh Respondents

Panel conditioning arises if respondents are influenced by participation in previous surveys, such that their answers differ significantly from the answers of individuals who are interviewed for the first time. Having two panels—a trained one and a completely fresh one—created a unique opportunity for analysing panel conditioning effects. To determine which type of question is sensitive to panel conditioning, 981 trained respondents and 2809 fresh respondents answered nine questions with different question types. The results in this paper show that panel conditioning only arise in knowledge questions. Questions on attitudes, actual behaviour, or facts were not sensitive to panel conditioning. Panel conditioning in knowledge questions was restricted to less-known subjects (more difficult questions), suggesting a relation between panel conditioning and cognition.panel conditioning;re-interviewing;measurement error;panel surveys

Can I use a Panel? Panel Conditioning and Attrition Bias in Panel Surveys

Over the past decades there has been an increasing use of panel surveys at the household or individual level, instead of using independent cross-sections. Panel data have important advantages, but there are also two potential drawbacks: attrition bias and panel conditioning effects. Attrition bias can arise if respondents drop out of the panel non-randomly, i.e., when attrition is correlated to a variable of interest. Panel conditioning arises if responses in one wave are in°uenced by participation in the previous wave(s). The experience of the previous interview(s) may affect the answers of respondents in a next interview on the same topic, such that their answers differ systematically from the answers of individuals who are interviewed for the first time. The literature has mainly focused on estimating attrition bias; less is known on panel conditioning effects. In this study we discuss how to disentangle the total bias in panel surveys due to attrition and panel conditioning into a panel conditioning and an attrition effect, and develop a test for panel conditioning allowing for non-random attrition. First, we consider a fully nonparametric approach without any assumptions other than those on the sample design, leading to interval identification of the measures for the attrition and panel conditioning effect. Second, we analyze the proposed measures under additional assumptions concerning the attrition process, making it possible to obtain point estimates and standard errors for both the attrition bias and the panel conditioning effect. We illustrate our method on a variety of questions from two-wave surveys conducted in a Dutch household panel. We found a significant bias due to panel conditioning in knowledge questions, but not in other types of questions. The examples show that the bounds can be informative if the attrition rate is not too high. Point estimates of the panel conditioning effect do not vary a lot with the different assumptions on the attrition process.panel conditioning;attrition bias;measurement error;panel surveys