The Role of Employment Protection During An Exogenous Shock To An Economy

This paper explores the role of employment protection when powerful external crises reduce demand for products. We first present a theoretical framework that shows that employment protection has a U-shaped effect on abnormal unemployment during a negative exogenous shock to an economy. Using data from the 33 OECD countries, we analyze how the level of employment protection affected the stability of unemployment rates during the recent global economic crisis. The results suggest that countries with an intermediate level of employment protection will have more stable unemployment rates during a world crisis. The policy implication of our paper is that countries should seek a medium level of employment protection that may act as an automatic stabilizer of the economy on the macro level.

Recalled emotions and risk judgments: Field study of the 2006 Israel-Lebanon War

The current study is based on a field study of the 2006 Israel-Lebanon war that was conducted in two waves, the first two weeks after the end of the war, and the second 18 months later (2008). The purpose of the study was to examine recalled emotions and perceived risks induced by manipulation using a short videoclip that recalled the sounds of the alarms and the sights of the missile attacks during the war. Before filling in the study questionnaire in 2008, the experimental group watched a short videoclip recalling the events of the war. The control group did not watch the video before filling in the questionnaire. Using the data provided by questionnaires, we analyzed the effect of recalled emotions on perceived risks in two different regions in Israel: the northern region, which was under missile attack daily during the war, and the central region, which was not under missile attacks. In general, our results suggest that the videoclip had a strong effect on the level of recalled emotions in both regions, while it did not have any impact on individuals’ risk judgments. The results of the analytical framework in the northern region support both the valence approach (Johnson & Tversky, 1983) and the modified appraisal tendency theory (Lerner & Keltner, 2000). The current study emphasizes the effects of recalled emotion in the context of the 2006 Israel-Lebanon war on perceived risks among those in the northern region who were under direct attack compared to those who were not directly exposed to the war. Understanding people’s responses to stressful events is crucial, not only when these events take place but also over time, since previous studies have suggested that media-induced emotions can influence appraisals and decisions regarding public policies.Risk perception, emotions, terrorism, Israel.

INVESTORS’ DECISION TO TRADE STOCKS – AN EXPERIMENTAL STUDY

This paper experimentally examines the behavior of investors when buying and selling stocks. This behavior was tested under different conditions, among them restrictions on asset holdings or different information conditions. Basic financial theory suggests that subjects buy and sell according to expectations regarding the future prices of assets. On the other hand, behavioral biases, such as the disposition effect, suggest that subjects are affected by past performance of assets. In a series of experiments, subjects were asked to allocate a given endowment among six assets. All the assets had the same normal distribution. The results show that when subjects were not restricted regarding the number of assets they were allowed to hold and were given information only on the asset they hold, the holding time for losing and winning assets was the same, indicating that there was no effect of past performance. On the other hand, when subjects were required to hold three assets at all times and replace one asset on each round, they tended to sell losing assets too soon and hold winning assets too long. The results also show that subjects who are given information on market returns tend to sell winning assets (relatively to the market) too soon and hold losing assets too long.Behavioral finance, Disposition effect, experimental economics, momentum, trading.

SUBJECTIVE EVALUATION OF DELAYED RISKY OUTCOMES: AN EXPERIMENTAL APPROACH

This paper uses experimental data to estimate the pure time discount rate for different lengths of times for riskless assets (bonds), and risky assets (delayed lotteries). In moving from the present time (t = 0) to the future, there is a very sharp decline (jump) in the subjective price of the assets for both buy and sell transactions. This jump corresponds to a large increase in the discount rate for the first period and a much lower discount rate for later periods (forward rate). The findings cast doubt on the relevance of the hyperbolic function approach to discounting.Willingness to accept (WTA); Willingness to pay (WTP);Intertemporal choice, Decision-making.

UNDER-DIVERSIFICATION AND THE ROLE OF BEST REPLY TO PATTERN

Three experiments are presented that compare alternative explanations to the coexistence of risk aversion and under-diversification in investment decisions. The participants were asked to select one of several assets under two feedback conditions. In each case, one asset was a weighted combination of the other assets, allowing for lower volatility. The frequency of choice of the composite asset was highly sensitive to feedback condition. The composite asset was the least popular asset when the feedback included information concerning forgone payoffs, and increased in frequency when the feedback was limited to the obtained payoff. These results support the assertion that under-diversification can be a product of learning from feedback and in particular best reply to pattern.Risk; Diversification; Learning

Decision-Making and the Newsvendor Problem – An Experimental Study

This paper investigates repetitive purchase decisions of perishable items in the face of uncertain demand (the newsvendor problem). The experimental design includes: high, or low profit levels; and uniform, or normal demand distributions. The results show that in all cases both learning and convergence occur and are effected by: (1) the mean demand; (2) the order-size of the maximal expected profit; and (3) the demand level of the immediately preceding round. In all cases of the experimental design, the purchase order converges to a value between the mean demand and the quantity for maximizing the expected profit.Inventory, Learning, Behavior, Management, Optimization

Misleading perceptions and economic efficiency in a regional system

This paper’s innovation is the introduction of a misperception effect to the core-periphery model. Using a theoretical model, we show that the free market will lead to distorted spatial distribution of firms between the core and the periphery when a misperception effect is introduced into the model. Based on a questionnaire, we found that a misperception regarding the quality of the production factor exists in favour of the core compared to the periphery. This misperception is found not only in the eyes of the core with regard to the periphery, but also in the periphery regarding itself. We suggest marketing and empowerment of the periphery as a policy tool to alter these misperceptions

Zavajajoče dojemanje in gospodarska učinkovitost regionalnega sistema

Novost, ki jo prinaša ta članek, je uporaba učinka napačnega dojemanja na modelu središče-obrobje. Na podlagi teoretičnega modela bomo pokazali, da na prostem trgu ob uvedbi učinka napačnega dojemanja v model pride do napačne porazdelitve podjetij med središčem in obrobjem. Anketa z vprašalnikom je potrdila, da obstaja napačno dojemanje kakovosti proizvodnih dejavnikov, in sicer v korist središča. To napačno dojemanje lahko najdemo tako v pogledih središča na obrobje kot v pogledih obrobja nase. Za spremembo teh napačnih dojemanj bi se moralo obrobje bolj tržiti, obenem pa tudi krepiti svojo vlogo in svoj položaj v državi

Worth the risk? Terrorism-induced fear of flying

We conducted two bi-national experiments regarding emotional and behavioral responses to a terrorist plot against commercial flights, examining both feelings and projected action. The studies employed hypothetical scenarios in which terrorists attacked airplanes with shoulder-fired missiles as they were landing or taking off from an international airport. The scenarios were built around two factorially crossed manipulated variables, each with three levels: (1) government announcements or actions (2) social norm, expressed as variation in airline ticket sales. Each respondent read a questionnaire containing only one of the nine scenarios. Experiment 1 was conducted in Spain and California (n = 360, 50% female), Experiment 2 in Israel and California (n = 504, 50% female). In both studies, fear and flight plans were not differentially affected by governmental response or social norm. Women expressed more fear than men. Experiment 1 examined the purpose of the trip. Most respondents would not change a planned flight to attend a close friend’s wedding or important job interview, but a substantial number would postpone a vacation or drive to a different location. Experiment 2 featured escalating attacks. These yielded increased fear and more canceled trips. Within both studies, responses were similar across countries despite national differences in direct experience with terrorism

¿Vale la pena el riesgo? Miedo inducido por el terrorismo a volar

We conducted two bi-national experiments regarding emotional and behavioral responses to a terrorist plot against commercial flights, examining both feelings and projected action. The studies employed hypothetical scenarios in which terrorists attacked airplanes with shoulder-fired missiles as they were landing or taking off from an international airport. The scenarios were built around two factorially crossed manipulated variables, each with three levels: (1) government announcements or actions (2) social norm, expressed as variation in airline ticket sales. Each respondent read a questionnaire containing only one of the nine scenarios. Experiment 1 was conducted in Spain and California (n = 360, 50% female), Experiment 2 in Israel and California (n = 504, 50% female). In both studies, fear and flight plans were not differentially affected by governmental response or social norm. Women expressed more fear than men. Experiment 1 examined the purpose of the trip. Most respondents would not change a planned flight to attend a close friend’s wedding or important job interview, but a substantial number would postpone a vacation or drive to a different location. Experiment 2 featured escalating attacks. These yielded increased fear and more canceled trips. Within both studies, responses were similar across countries despite national differences in direct experience with terrorism.Se realizaron dos experimentos bi-nacionales con respecto a las respuestas emocionales y conductuales a un plan terrorista contra vuelos comerciales, examinando ambas cosas: sentimientos y proyectos de acción. Los estudios emplearon escenarios hipotéticos en los que los terroristas atacaron los aviones con misiles disparados desde el hombro, ya que estaban aterrizando o despegando desde un aeropuerto internacional. Los escenarios fueron construidos alrededor de dos variables factoriales cruzadas, cada uno con tres niveles: (1) los anuncios o acciones del gobierno (2) norma social, expresada como la variación en la venta de billetes de avión. Cada encuestado leyó un cuestionario que contenía sólo uno de los nueve escenarios. El experimento 1 se realizó en España y California (n = 360, 50% mujeres), el experimento 2 en Israel y California (n = 504, 50% mujeres). En ambos estudios, el miedo y los planes de vuelo no fueron diferencialmente afectados por la respuesta gubernamental o la norma social. Las mujeres expresaron más miedo que los hombres. El experimento 1 examinó el propósito del viaje. La mayoría de los encuestados no cambiarían un vuelo planeado para asistir a la boda de un amigo cercano o para una importante entrevista de trabajo, pero un número considerable de participantes podrían posponer unas vacaciones o ir en coche a un lugar diferente. El experimento 2 contó con la escalada de los ataques. Estas aumentaron el temor y la cantidad de viajes cancelados. En ambos estudios, las respuestas fueron similares en todos los países a pesar de las diferencias nacionales y la experiencia directa con el terrorismo.Depto. de Economía Aplicada, Estructura e HistoriaFac. de Ciencias Económicas y EmpresarialesTRUEpu