Decision Making and Trade without Probabilities

What is a rational decision-maker supposed to do when facing an unfamiliar problem, where there is uncertainty but no basis for making probabilistic assessments? One answer is to use a form of expected utility theory, and assume that agents assign their own subjective probabilities to each element of the (presumably known) state space. In contrast, this paper presents a model in which agents do not form subjective probabilities over the elements of the state space, but nonetheless use new information to update their beliefs about what the elements of the state space are. This model is shown to lead to different predictions about trading behavior in a simple asset market under uncertainty. A controlled laboratory experiment tests the predictions of this model against those of expected utility theory and against the hypothesis that subjects act na¨ıvely and non-strategically. The results suggest that a lack of subjective probabilities does not imply irrational or unpredictable behavior, but instead allows individuals to use both what they know and knowledge of what they do not know in their decision making. Comment un décideur rationnel est-il censé réagir face à un problème qui ne lui est pas familier lorsquâil existe une certaine incertitude, et en lâabsence dâune base sur laquelle effectuer des estimations probabilistes? Une solution consiste à utiliser une forme de la théorie de lâutilité espérée et de présumer que les agents attribuent leurs propres probabilités subjectives à chaque élément de la représentation dâétat (sans doute connue). Par contraste, notre article présente un modèle où les agents ne forment pas de probabilités subjectives sur les éléments de la représentation dâétat, mais utilisent de nouveaux renseignements afin de mettre à jour leurs croyances sur les éléments formant la représentation dâétat. Le comportement des échanges avec ce modèle dans un marché dâactifs simple et incertain nous mène à des prédictions différentes. En utilisant une expérience contrôlée en laboratoire, nous avons vérifié les prédictions de ce modèle contre celles de la théorie de lâutilité espérée et contre lâhypothèse que les sujets agissent avec naïveté et sans recourir à une stratégie. Les résultats suggèrent quâun manque de probabilités subjectives nâimplique pas un comportement irrationnel ou imprévisible, mais permet plutôt aux individus dâutiliser autant lâinformation quâils possèdent que la connaissance de lâinformation quâils ne possèdent pas dans leur prise de décision.Uncertainty; non-expected utility; incomplete preferences; ambiguity., Incertitude, utilité non espérée, préférences incomplètes, ambiguïté.

Does Fair Value Accounting Reduce Prices and Create Illiquidity?

Concerns about the use of fair value accounting commonly focus on the sensitivity of market prices to exogenous liquidity shocks. In this paper, we show that the use of fair value accounting for assets without an active market endogenously creates illiq- uidity. The underlying mechanism is the discretion in fair value reports when prices are unavailable. Firms use this discretion to report aggressively, leading to two market e ects. On the plus side, by revealing an upper bound on an asset's value, fair value reporting leads to lower prices than would occur in a conservative regime. This is an indication that prices are more e cient than under conservatism, as the reports protect investors from paying information rents. The downside is that fair value reports cannot credibly convey a lower bound on an asset's value, causing illiquidity. We con rm these e ects in a laboratory experiment

Decision Making and Trade without Probabilities

This paper studies trade in a first-price sealed-bid auction where agents know only a range of possible payoffs. The setting is one in which a lemons problem arises, so that if agents have common risk preferences and common priors, then expected utility theory leads to a prediction of no trade. In contrast, we develop a model of rational non-probabilistic decision making, under which trade can occur because not bidding is a weakly dominated strategy. We use a laboratory experiment to test the predictions of both models, and also of models of expected utility with heterogeneous priors and risk preferences. We find strong support for the rational non-probabilistic model

Supreme Court judgments based on reasons outside the law are unlikely to harm its legitimacy.

While almost all judgments from the Supreme Court are based on some kind of existing law, there are a small number which are not. Instead justices use public opinion, religious texts, and their own personal beliefs to justify their decisions. In new research, Chris Bonneau, Jarrod Kelly, Kira Pronin, Shane Redman and Matt Zarit examine whether such ‘extralegal’ decisions harm the Court’s legitimacy in the eyes of the public. They find that when moral or public opinion reasons are provided in addition to legal precedents, then public opinion about that decision’s legitimacy does not change. Members of the public only change their opinion on a decision’s legitimacy when they believe one specific reason is inappropriate and they disagree with the outcome

Bespoke scapegoats: Scientific advisory bodies and blame avoidance in the Covid-19 pandemic and beyond

Scholars have not asked why so many governments created ad hoc scientific advisory bodies (ahSABs) to address the Covid-19 pandemic instead of relying on existing public health infrastructure. We address this neglected question with an exploratory study of the US, UK, Sweden, Italy, Poland, and Uganda. Drawing on our case studies and the blame-avoidance literature, we find that ahSABs are created to excuse unpopular policies and take the blame should things go wrong. Thus, membership typically represents a narrow range of perspectives. An ahSAB is a good scapegoat because it does little to reduce government discretion and has limited ability to deflect blame back to government. Our explanation of our deviant case of Sweden, that did not create and ahSAB, reinforces our general principles. We draw the policy inference that ahSAB membership should be vetted by the legislature to ensure broad membership.Comment: 2 tables, 1 figur

Scalable high-repetition-rate sub-half-cycle terahertz pulses from spatially indirect interband transitions

Intense phase-locked terahertz (THz) pulses are the bedrock of THz lightwave electronics, where the carrier field creates a transient bias to control electrons on sub-cycle time scales. Key applications such as THz scanning tunnelling microscopy or electronic devices operating at optical clock rates call for ultimately short, almost unipolar waveforms, at megahertz (MHz) repetition rates. Here, we present a flexible and scalable scheme for the generation of strong phase-locked THz pulses based on shift currents in type-II-aligned epitaxial semiconductor heterostructures. The measured THz waveforms exhibit only 0.45 optical cycles at their centre frequency within the full width at half maximum of the intensity envelope, peak fields above 1.1 kV cm−1 and spectral components up to the mid-infrared, at a repetition rate of 4 MHz. The only positive half-cycle of this waveform exceeds all negative half-cycles by almost four times, which is unexpected from shift currents alone. Our detailed analysis reveals that local charging dynamics induces the pronounced positive THz-emission peak as electrons and holes approach charge neutrality after separation by the optical pump pulse, also enabling ultrabroadband operation. Our unipolar emitters mark a milestone for flexibly scalable, next-generation high-repetition-rate sources of intense and strongly asymmetric electric field transients

A Voice without a Veto: Consensus-building through Inclusion of Stakeholders

This thesis studies whether including a broad group of stakeholders in policy advisory commissions helps build consensus. It may seem that including interested parties with conflicting preferences would increase conflict, but advisory commissions reach unanimity with a surprisingly high frequency. I propose two reasons why diversity can increase agreement. First, ideologically diverse parties from a variety of backgrounds can produce a greater variety of policy-relevant knowledge, increasing the valence of a proposal. Second, in a diverse commission, a proposal without broad appeal will lead some commission members to issue dissenting opinions, which reduce the government's willingness to follow the majority recommendation. I show in a formal model that both of these factors help increase consensus by incentivizing commission members to coordinate on a policy recommendation that all actors weakly prefer to the government's outside option. To test the model's predictions, I use a novel, hand-collected data set of 2,705 Swedish commissions of inquiry that completed their inquiries between 1990 and 2018. Swedish governments appoint commissions for all significant legislative initiatives, so the data minimize selection bias. As the theory predicts, I find that increasing stakeholder representation in broadly representative commissions increases consensus. The last chapter of this thesis studies the preconditions that make it possible for this institution to flourish. These may explain variation in the appointment of broadly representative commissions under different governments

Differential Information Economies and Incomplete Markets

In a pure exchange economy with differential information, there may be ex-post Pareto-dominant core allocations which are not attainable as Rational Expectations Equilibria because of information verifiability issues. On the other hand, many of the core allocations in the differential information economy do not seem realistic, given incentive constraints. This fundamental tension between missed trading opportunities and moral hazard will be explored using concepts from cooperative game theory and financial economics

Conflict-resolvers or tools of electoral struggle? Swedish commissions of inquiry 1990-2016

Many countries face growing challenges of democratic governance from political polarizationand the increasingly complex nature of policy problems. The question is then how can governments build consensus and confer legitimacy on policy proposals in an environment where negotiating agreement among competing interests is increasingly difficult? In the past, many governments have dealt with these types of challenges by appointing ad hoc, independent commissions of experts and stakeholders from both sides of the political aisle to provide independent policy advice and to serve as an arena for political negotiation. Such commissions have been especially prevalent in Sweden, known for its rational and consensus-oriented policy making process. Drawing on a unique database, we investigate whether Swedish commissions can still fulfill their role as the cornerstone of the Swedish policymak-ing process. We analyze commissions with regard to their membership, political independence, and resources. We find that broadly representative commissions with policy stakeholders and parliamen-tary politicians, which havehistorically constituted about 50 percent of Swedish commissions of in-quiry, are now only a small fraction of commissions. The government is also exerting more control over commission outcomes by giving a greater number of directives. However, commission resources have stayed about the same, and commission do not appear to be used as a tactical electoral tool