Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis

Two behavioral concepts, loss aversion and mental accounting, have been combined to provide a theoretical explanation of the equity premium puzzle. Recent experimental evidence supports the theory, as students-behavior has been found to be consistent with myopic loss aversion (MLA). Yet, much like certain anomalies in the realm of riskless decision-making, these behavioral tendencies may be attenuated among professionals. Using traders recruited from the CBOT, we do indeed find behavioral differences between professionals and students, but rather than discovering that the anomaly is muted, we find that traders exhibit behavior consistent with MLA to a greater extent than students.

A simple test of expected utility theory using professional traders

We compare behavior across students and professional traders from the Chicago Board of Trade in a classic Allais paradox experiment. Our experiment tests whether independence, a necessary condition in expected utility theory, is systematically violated. We find that both students and professionals exhibit some behavior consistent with the Allais paradox, but the data pattern does suggest that the trader population falls prey to the Allais paradox less frequently than the student population.Allais paradox, experiments, futures traders

Summary of the Heavy Flavor Working Group

During the last year many important results have been achieved in heavy flavour physics: New measurements of charm and beauty production have been performed at HERA and the Tevatron. A wealth of new spectroscopy data with several new, unexpected states in the charmonium and the D_s systems has been collected and b to d gamma transitions have been established. The oscillation frequency in the B_s Bbar_s is now measured, and mixing in the D0 D0bar system has been observed. Theoretical progress in the areas of open heavy flavour production, quarkonium production and decays, and multiquark spectroscopy has been presented at this workshop.Comment: 17 pages, 3 figures, to appear in the Proceedings of the XV International Workshop on Deep-Inelastic Scattering and Related Subjectes, DIS 2007, April 16--20, 2007, Munich, German

On the Formation of Buyer-Seller Relationships when Product Quality is Perfectly Observable

This study explores the formation of buyer-seller relationships in markets with observable quality. We develop a model that explains why relationships form in equilibrium within such markets. A key feature of our model is that as individuals gain experience in the marketplace, they resolve uncertainty over unobserved bargainer types. Relationships thus form as a means to reduce such transactions costs and uncertainty. We explore the usefulness of our theory by using a battery of simulations and experimental treatments. Overall, we find that our theoretical predictions are largely confirmed. Interestingly, the quantitative impact of relationships on overall market efficiency depends critically on the extend to which market structure affects the matching of buyers and sellers that could profitably transact. In certain important cases, a greater number of buyer-seller relationships can reduce market efficiency.Field experiments, pricing, market structure

Information Cascades: Evidence from An Experiment with Financial Market Professionals

Previous empirical studies of information cascades use either naturally occurring data or laboratory experiments with student subjects. We combine attractive elements from each of these lines of research by observing market professionals from the Chicago Board of Trade (CBOT) in a controlled environment. As a baseline, we compare their behavior to student choices in similar treatments. We further examine whether, and to what extent, cascade formation is influenced by both private signal strength and the quality of previous public signals, as well as decision heuristics that differ from Bayesian rationality. Analysis of over 1,500 individual decisions suggests that CBOT professionals are better able to discern the quality of public signals than their student counterparts. This leads to much different cascade formation. Further, while the behavior of students is consistent with the notion that losses loom larger than gains, market professionals are unaffected by the domain of earnings. These results are important in both a positive and normative sense.

Is the Endangered Species Act Endangering Species?

We develop theory and present a suite of theoretically consistent empirical measures to explore the extent to which market intervention inadvertently alters resource allocation in a sequentialmove principal/agent game. We showcase our approach empirically by exploring the extent to which the U.S. Endangered Species Act has altered land development patterns. We report evidence indicating significant acceleration of development directly after each of several events deemed likely to raise fears among owners of habitat land. Our preferred estimate suggests an overall acceleration of land development by roughly one year. We also find from complementary hedonic regression models that habitat parcels declined in value when the habitat map was published, which is consistent with our estimates of the degree of preemption. These results have clear implications for policymakers, who continue to discuss alternative regulatory frameworks for species preservation. More generally, our modeling strategies can be widely applied -- from any particular economic environment that has a sequential-move nature to the narrower case of the political economy of regulation.

Toward an Understanding of the Economics of Charity: Evidence from a Field Experiment

This study develops theory and uses a door-to-door fundraising field experiment to explore the economics of charity. We approached nearly 5000 households, randomly divided into four experimental treatments, to shed light on key issues on the demand side of charitable fundraising. Empirical results are in line with our theory: in gross terms, our lottery treatments raised considerably more money than our voluntary contributions treatments. Interestingly, we find that a one standard deviation increase in female solicitor physical attractiveness is similar to that of the lottery incentive¡ªthe magnitude of the estimated difference in gifts is roughly equivalent to the treatment effect of moving from our theoretically most attractive approach (lotteries) to our least attractive approach (voluntary contributions).

The Effects of Environmental Regulation on the Competitiveness of U.S. Manufacturing

The economic costs of environmental regulations have been widely debated since the U.S. began to restrict pollution emissions more than four decades ago. Using detailed production data from nearly 1.2 million plant observations drawn from the 1972–1993 Annual Survey of Manufactures, we estimate the effects of air quality regulations on manufacturing plants’ total factor productivity (TFP) levels. We find that among surviving polluting plants, stricter air quality regulations are associated with a roughly 2.6 percent decline in TFP. The regulations governing ozone have particularly large negative effects on productivity, though effects are also evident among particulates and sulfur dioxide emitters. Carbon monoxide regulations, on the other hand, appear to increase measured TFP, especially among refineries. The application of corrections for the confounding of price increases and output declines and sample selection on survival produce a 4.8 percent estimated decline in TFP for polluting plants in regulated areas. This corresponds to an annual economic cost from the regulation of manufacturing plants of roughly $21 billion, which is about 8.8 percent of manufacturing sector profits in this period

A Framework for the Systematic Evaluation of Data and Analytics Use Cases at an Early Stage

Due to the immense growth of collected data and advancing big data technologies, there are countless potential use cases of data and analytics. But most data initiatives fail and do not bring the desired outcome. One essential reason for this situation is the lack of a systematic approach to evaluate and select promising analytics use cases. This study presents an evaluation framework that enables the systematic screening at an early stage by assessing nine criteria with the help of a scoring model. It also supports a prioritization among several use cases and facilitates the communication to decision makers. The action design research approach was followed to build, test, and evaluate the framework in three iterative design cycles. It was developed in close collaboration with Bundesdruckerei GmbH, an IT-security company owned by the German government that offers products and services for secure identities, data, and infrastructures

Improved Formalism for Precision Higgs Coupling Fits

Future e+e- colliders give the promise of model-independent determinations of the couplings of the Higgs boson. In this paper, we present an improved formalism for extracting Higgs boson couplings from e+e- data, based on the Effective Field Theory description of corrections to the Standard Model. We apply this formalism to give projections of Higgs coupling accuracies for stages of the International Linear Collider and for other proposed e+e- colliders.Comment: 34 pages, 4 figures; v4: clarifications and new references added; v5, additional references adde