scholarly journals Price Reaction to Information with Heterogeneous Beliefs and Wealth Effects: Underreaction, Momentum, and Reversal

2015 ◽  
Vol 105 (1) ◽  
pp. 01-34 ◽  
Author(s):  
Marco Ottaviani ◽  
Peter Norman Sørensen
Keyword(s):  
Asset Prices ◽  
Competitive Equilibrium ◽  
Equilibrium Price ◽  
Heterogeneous Beliefs ◽  
Wealth Effects ◽  
Risk Averse ◽  
Prior Beliefs ◽  
Initial Momentum ◽  
Dynamic Setting ◽  
Long Run

This paper analyzes how asset prices in a binary market react to information when traders have heterogeneous prior beliefs. We show that the competitive equilibrium price underreacts to information when there is a bound to the amount of money traders are allowed to invest. Underreaction is more pronounced when prior beliefs are more heterogeneous. Even in the absence of exogenous bounds on the amount that traders can invest, prices underreact to information provided that traders become less risk averse as their wealth increases. In a dynamic setting, underreaction results in initial momentum and then reversal in the long run. (JEL D83, D84, G11, G12, G14)

scholarly journals Honesty Pledges for the Behaviorally-based Regulation of Dishonesty

2020 ◽  
Author(s):  
Eyal Peer ◽  
Yuval Feldman
Keyword(s):  
Term Effect ◽  
Risk Averse ◽  
Behavioral Regulation ◽  
Short Term ◽  
Behavioral Ethics ◽  
The Public ◽  
Ethical Decisions ◽  
Long Run ◽  
Self Reports ◽  
Very High

A common dilemma in regulation is determining how much trust authorities can place in people’s self-reports, especially in regulatory contexts where the incentive to cheat is very high. In such contexts, regulators, who are typically risk averse, do not readily confer trust, resulting worldwide in excessive requirements when applying for permits, licenses, and the like. Studies in behavioral ethics have suggested that asking people to ex-ante pledge to behave ethically can reduce their level of dishonesty and noncompliance. However, pledges might also backfire by allowing more people to cheat with no real sanctions. Additionally, pledges’ effects have only been studied in one-shot decision making, and they may only have a short-term effect that could decay in the long run, leading to an overall erosion of trust. We explored the interaction of pledges with sanctions and the decay of their effects on people’s honesty by manipulating whether pledges were accompanied by sanctions (fines) and testing their impact on sequential, repeated ethical decisions. We found that pledges considerably and consistently reduced dishonesty, and this effect was not crowded out by the presence of fines. Furthermore, pledges seem to exert an effect on most people, including those who are relatively less inclined to follow rules and norms. We conclude that pledges could be an effective tool for the behavioral regulation of dishonesty, reduce the regulatory burden, and build a more trusting relationship between government and the public, even in areas where incentives and opportunities to cheat are high.

scholarly journals The price of gold in the year 2000: A forecast

1986 ◽  
Vol 17 (1) ◽  
pp. 43-47
Author(s):  
A. Pouris
Keyword(s):  
Commodity Prices ◽  
Equilibrium Price ◽  
Long Run ◽  
Current Price ◽  
Year 2000 ◽  
Long Run Equilibrium

In this article, two of the most recent efforts to forecast the price of gold are discussed and a prediction for the year 2000 is provided. The forecast is based on the hypothesis that in the long run, commodity prices follow a well-defined path, which permits only gradual and slow changes. The analysis shows that the current price of gold (1985) in terms of US dollars, coincide with the long run equilibrium price simulated by the model. The forecast for the year 2000 suggests that the expected price is US $420 per fine ounce in 1983 constant dollars.

Risk Aversion and Unemployment in an Open Economy

2000 ◽  
Vol 49 (2) ◽  
Author(s):  
Pia Weiß
Keyword(s):  
Risk Aversion ◽  
Open Economy ◽  
Small Open Economy ◽  
Risk Behaviour ◽  
Terms Of Trade ◽  
Individual Risk ◽  
Risk Averse ◽  
Search Frictions ◽  
Long Run ◽  
The Impact

AbstractThe paper analyses the impact which risk aversion has on a small open economy characterised by search frictions on the labour market. It is shown that the long-run qualitative effects caused by a terms-of-trade shock are independent of individual risk behaviour. As far as quantitative aspects are concerned risk aversion always leads to higher equilibrium employment; however the increase in unemployment due to a price shock is the higher the more risk-averse individuals are.

scholarly journals The Risk of Failure: Trial and Error Learning and Long-Run Performance

2019 ◽  
Vol 11 (1) ◽  
pp. 44-78 ◽  
Author(s):  
Steven Callander ◽  
Niko Matouschek
Keyword(s):  
Sufficient Conditions ◽  
Decision Makers ◽  
Risk Averse ◽  
Trial And Error ◽  
Improve Performance ◽  
Risk Of Failure ◽  
Long Run ◽  
Error Learning ◽  
And Performance ◽  
The Impact

Innovation is often the key to sustained progress, yet innovation itself is difficult and highly risky. Success is not guaranteed as breakthroughs are mixed with setbacks and the path of learning is typically far from smooth. How decision makers learn by trial and error and the efficacy of the process are inextricably linked to the incentives of the decision makers themselves and, in particular, to their tolerance for risk. In this paper, we develop a model of trial and error learning with risk averse agents who learn by observing the choices of earlier agents and the outcomes that are realized. We identify sufficient conditions for the existence of optimal actions. We show that behavior within each period varies in risk and performance and that a performance trap develops, such that low performing agents opt to not experiment and thus fail to gain the knowledge necessary to improve performance. We also show that the impact of risk reverberates across periods, leading, on average, to divergence in long-run performance across agents. (JEL D81, D83, O31, O38)

On relative-wealth effects and long-run growth

2001 ◽  
Vol 55 (4) ◽  
pp. 349-358 ◽  
Author(s):  
Giacomo Corneo ◽  
Olivier Jeanne
Keyword(s):  
Wealth Effects ◽  
Relative Wealth ◽  
Long Run

Dynamics of fine wine and asset prices: evidence from short- and long-run co-movements

2015 ◽  
Vol 47 (29) ◽  
pp. 3059-3077 ◽  
Author(s):  
B. Faye ◽  
E. Le Fur ◽  
S. Prat
Keyword(s):  
Asset Prices ◽  
Long Run
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