The Behavioral Economics and Politics of Global Warming: Unsettling Behaviors

The main goal of this Element is to provide a psychological explanation for why actual global climate policy is so greatly at odds with the prescriptions of most neoclassical economists. To be sure, the behavioral approach does focus on why neoclassical models are often psychologically unrealistic. However, in this Element the author argues that the unrealistic elements are minor compared to the psychological pitfalls driving politically determined climate policy. Why this is the case is what the author describes as the \u27big behavioral question.\u27 More precisely, the big behavioral question asks about unsettling behaviors, why there is a huge gap between actual policy and even the weakest of the prescriptions in the range of plausible recommendations coming from neoclassical economists\u27 integrated assessment models.https://scholarcommons.scu.edu/faculty_books/1608/thumbnail.jp

The Multinomial Option Pricing Model and Its Brownian and Poisson Limits

The Cox, Ross, and Rubinstein binomial model is generalized to the multinomial case. Limits are investigated and shown to yield the Black-Scholes formula in the case of continuous sample paths for a wide variety of complete market structures. In the discontinuous case a Merton-type formula is shown to result, provided jump probabilities are replaced by their corresponding Arrow-Debreu prices.Multinomial, option, pricing, Brownian, Poisson

Bad Corporate Marriages: Waking Up in Bed the Morning After

This paper examines corporate risk taking behavior in the wake of unsuccessful merger activities. We find that relative to other firms, firms that made bad acquisitions take both more systematic risk and more idiosyncratic risk. Moreover, higher risk is associated with greater value destruction and stronger corporate governance. The increased risk can be traced to increased cash flow volatility, increased leverage, decreased asset liquidity, more investment in R&D, and more equity-based executive compensation. These findings are in line with the behavioral approach suggesting that in the domain of losses, decision makers generally become more tolerant of risk

Explaining investor preference for cash dividends.

The well-known tendency of investors to favor cash dividends emerges quite naturally in two new theories of choice behavior [the theory of self-control due t

The multinomial option pricing model and its Brownian and poisson limits

The Cox, Ross, and Rubinstein binomial model is generalized to the multinomial case. Limits are investigated and shown to yield the Black-Scholes formula in the case of continuous sample paths for a wide variety of complete market structures. In the discontinuous case a Merton-type formula is shown to result, provided jump probabilities are replaced by their corresponding Arrow-Debreu prices

Why have asset price properties changed so little in 200 years

We first review empirical evidence that asset prices have had episodes of large fluctuations and been inefficient for at least 200 years. We briefly review recent theoretical results as well as the neurological basis of trend following and finally argue that these asset price properties can be attributed to two fundamental mechanisms that have not changed for many centuries: an innate preference for trend following and the collective tendency to exploit as much as possible detectable price arbitrage, which leads to destabilizing feedback loops.Comment: 16 pages, 4 figure

Cross-Base Tax Elasticity of Capital Gains

This paper studies the cross-base tax elasticity of capital gains realizations to labor income taxes when capital gains are taxed at a separate proportional tax rate. Using a longitudinal panel of over 265,000 individuals in Sweden, this paper shows in a regression kink design that labor income taxes affect capital gains at the extensive and intensive margins. An increase in the marginal labor income tax rate increases the likelihood of realizing capital gains and the amount of realized capital gains. One implication of this result is that the excess burden of labor income taxation is affected by cross-base tax elasticities

What Drives Home Bias? Evidence from Fund Managers' Views

A survey of fund managers reveals home bias for these sophisticated investors in an unrestricted setting. Proximity, perceived informational advantage and higher expected returns are confirmed as accompanying factors. In addition, the home bias of equity managers is also related to institutional, informational and behavioral characteristics. The perceived informational advantage does not seem to be valid. Multivariate analyses indicate that home bias is mainly related to relative return optimism, non-fundamental information and peculiar behavior towards risk. We interpret these as characteristics of less than fully rational behavior. It is consistently found that this pattern does not apply to bond managers.Eine Befragung von Fondsmanagern offenbart die Heimatverzerrung (sog. Home Bias) dieser erfahrenen Investoren in unbegrenzten Rahmenbedingungen. Nähe, empfundene Informationsvorteile und höhere erwartete Renditen werden als Begleitumstände bestätigt. Zusätzlich ist der Home Bias von Aktienfondsmanagern mit institutionellen und informatorischen Gegebenheiten sowie mit bestimmten Verhaltensmustern verbunden. Der empfundene Informationsvorteil scheint sich jedoch nicht zu bewahrheiten. Multivariate Analysen zeigen, dass der Home Bias hauptsächlich mit relativem Renditeoptimismus, der Nutzung nicht-fundamentaler Informationen und besonderem Risikoverhalten verbunden ist. Wir interpretieren diese Eigenschaften als unvollkommen rationales Verhalten. Konsistent zeigt sich, dass dieses Muster nicht für Rentenfondsmanager gilt

Impatience and Credit Behavior: Evidence from a Field Experiment

This paper tests whether heterogeneity of time preferences can explain individual credit behavior. In a field experiment targeting individuals from low-to-moderate income households, we measure individual time preferences through choice experiments, and then match these time preference measures to individual credit reports and annual tax returns. We find that, controlling for disposable income and other individual characteristics, individuals who are less patient have lower credit scores and higher default rates. Moreover, people with dynamically inconsistent (quasi-hyperbolic) preferences have higher active borrowing levels