Knowledge that Transforms

We study a Lucas asset-pricing model that is standard in all respects, except that the representative agent's subjective beliefs about endowment growth are distorted. Using constant relative risk-aversion (CRRA) utility, with a CRRA coefficient below 10; fluctuating beliefs that exhibit, on average, excessive pessimism over expansions; and excessive optimism over contractions (both ending more quickly than the data suggest), our model is able to match the first and second moments of the equity premium and risk-free rate, as well as the persistence and predictability of excess returns found in the data.

PUR 6403 Crisis and Risk Management focuses on practical applications of theory and research to identify and strategically manage issues and operational risks that can materially affect the continuity of global organizations. Emphasis is placed on preparing managers for ethical and effective risk and crisis communication, as well as the formulation of strategic crisis communication plans. Class information: PUR 6403 §1219 meets 8th-10th periods (3-6 p.m.) on Thursdays in Weimer 3020. Course goals: The goal of PUR 6403 is for students to understand and appreciate how issues impact organizational continuity, how issues and operational risks are strategically managed and crises averted, and the importance of ethical, effective risk and crisis communication.

We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern. The model is incomplete information but nevertheless posed entirely in terms of directly observable variables. The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets.

This paper considers propagation of aggregate shocks in a dynamic general-equilibrium model with labor-market matching and endogenous job destruction. Cyclical fluctuations in the job-destruction rate magnify the output effects of shocks, as well as making them much more persistent. Interactions between capital adjustment and the job-destruction rate play an important role in generating persistence. Propagation effects are shown to be quantitatively substantial when the model is calibrated using job-flow data. Incorporating costly capital adjustment leads to significantly greater propagation.

The national income accounts, together with the source data which they use, form the core of our economic measurement system. The development of the concepts and measurements of national income are among the most important achievements of modern

Why Are Women Such Reluctant Economists? Evidence from Liberal Arts Colleges by Elizabeth J. Jensen and Ann L. Owen. Published in volume 90, issue 2, pages 466-470 of American Economic Review, May 2000

A change in the audition procedures of symphony orchestras—adoption of “blind” auditions with a “screen” to conceal the candidate's identity from the jury—provides a test for sex-biased hiring. Using data from actual auditions, in an individual fixed-effects framework, we find that the screen increases the probability a woman will be advanced and hired. Although some of our estimates have large standard errors and there is one persistent effect in the opposite direction, the weight of the evidence suggests that the blind audition procedure fostered impartiality in hiring and increased the proportion women in symphony orchestras.

Whether welfare benefits affect marriage and fertility decisions of the low-income population has been the subject of much research. The substantial bias in the U.S. welfare system toward female-headed families, relative to either married couples or single childless individuals, provides a clear financial incentive for early nonmarital childbearing, postponement of marriage, divorce, postponement of remarriage, and other behaviors that make eligibility for welfare benefits more likely or that avoid the loss of eligibility after it has been achieved. The findings in the cross-sectional research literature through 1995, summarized in Moffitt (1998), exhibit a clear central tendency pointing toward an effect of welfare on some aspects of family structure, namely, marriage and fertility. However, there is also agreement that the time-series evidence is inconsistent with that from crosssectional data, for real benefits have been falling for over 20 years, while female headship has been rising. Moreover, bringing other programs such as Food Stamps and Medicaid into the picture helps explain rising female headship increases in the late 1960's and early 1970's, when those programs were introduced and solidified, but does less well in explaining the

Cognition requires scarce inputs, including time and concentration. Since cognition is costly, sophisticated decision-makers should use mental shortcuts, or heuristics, to reduce cognitive burdens. A model is proposed and tested that is motivated by these principles. It is believed this model achieves four goals. First, the model makes quantitative behavioral predictions and, hence, provides a precise alternative to the rational-actor hypothesis. Second, the model is psychologically plausible because it is based on the actual decisions algorithms that subjects claim to use. Third, the model is empirically testable; such a test is provided in this paper. Fourth, the model is broadly applicable, because it can be used to analyze decision problems that can be represented in tree form.