Research Seminars

Are policymakers ambiguity averse?

Economics & Decision Sciences

Speaker: Professor Loïc Berger

26 October 2017 - HEC Campus - T Building - Room T017 - From 2:00 pm to 3:00 pm

We investigate the ambiguity preferences of a unique sample of real-life policymakers at the Paris UN climate conference (COP21). We find that policymakers are generally ambiguity averse. Using a simple design which explicitly makes the distinction between objective and subjective probabilities presented in different layers, we are moreover able to detect a strong association between preferences towards model uncertainty and those towards ambiguity. These results suggest that the preferences policymakers exhibit towards ambiguity are not necessarily due to an irrational behavior (such as the inability to reduce compound lotteries), but rather to intrinsic preferences over unknown probabilities, thus shedding new light on the role that ambiguity models can play in informing policymaking. Results are confirmed in a laboratory experiment with university students.

Ambiguous Policy Announcements

Economics & Decision Sciences

Speaker: Luigi Paciello
Professor , EIEF

12 October 2017 - HEC Campus - T Building - Room T004 - From 2:00 pm to 3:00 pm

We study the effects of an announcement of a future shift in monetary policy in a new Keynesian model, where ambiguity-averse households with heterogeneous net financial wealth face Knightian uncertainty about the credibility of the announcement. The response of aggregate demand to the announcement of a future loosening in monetary policy falls when financial wealth is more concentrated. The concentration of financial wealth matters because households with great net financial wealth (creditors) are those who are the most likely to believe the announcement, due to the potential loss of wealth from the prospective policy easing. And when creditors believe the announcement more than debtors, their expected wealth losses are larger than the wealth gains that debtors expect. So aggregate net wealth is perceived to fall, which attenuates the effects of forward guidance announcements and can even lead to a contraction in aggregate demand when financial wealth is concentrated enough. We calibrate the model to the Euro area after allowing agents to trade in short and long term nominal assets as well in real assets, and find that the effect can be quantitatively important.

The Comparative Advantage of Cities

Economics & Decision Sciences

Speaker: Pr Donald Davis

21 September 2017 - HEC Campus - T Building - room T020 - From 1:30 pm to 2:30 pm

What determines the distributions of skills, occupations, and industries across cities? We develop a theory to jointly address these fundamental questions about the spatial organization of economies. Our model incorporates a system of cities, their internal urban structures, and a high-dimensional theory of factor-driven comparative advantage. It predicts that larger cities will be skill-abundant and specialize in skillintensive activities according to the monotone likelihood ratio property. We test the model using data on 270 US metropolitan areas, 3 to 9 educational categories, 22 occupations, and 19 industries. The results provide support for our theory’s predictions.

Economics & Decision Sciences

Speaker: Michele Tertilt
University of Mannheim

15 June 2017

The wicked learning environment of regression toward the mean

Economics & Decision Sciences

Speaker: Emre Soyer

4 May 2017 - T017 - From 1:30 pm to 2:30 pm


The environment in which people experience regression toward the mean inhibits accurate learning and valid intuitions in many domains, including medicine, sports and management. In predictive tasks, regression effects are only salient in rare cases where cues take extreme values. People often experience regression away from the mean. Furthermore, errors from predictions that ignore regression effects correlate highly with those of optimal predictions. In diagnostic tasks, people fail to recognize regression effects because they are motivated to seek causal explanations. Causes are attributed to easily identifiable factors that make good stories. A simple heuristic can overcome these inferential difficulties. In predictive tasks, a “50/50 rule” that gives equal weight to the cue and the mean of the target variable approximates optimal performance. In diagnostic tasks, the same rule can be used to generate non-causal counterfactuals to challenge possible causal candidates.

Two dimensions of subjective uncertainty

Economics & Decision Sciences

Speaker: Craig Fox

27 April 2017 - T004 - From 11:00 am to 12:00 pm

Hedge your bets: Risk reduction strategies on a real-world betting market

Economics & Decision Sciences

Speaker: Thomas Epper
University of St.Gallen

23 March 2017 - T022 - From 11:00 am to 12:00 pm

Many people engage in gambling on actuarially unfair terms. For this reason,
it has long been argued that risk seeking is a prerequisite for participating in
gambling. We document a series of findings which are apparently inconsistent with
the notion of risk proneness. In particular, we find a strong disparity between
risk attitudes rationalizing market entrance and risk attitudes rationalizing betting
transactions. More specifically, we show that, while risk proneness is needed for
engaging in betting per se, bettors make use of risk reduction strategies once they
made the decision to bet. Importantly, these risk reduction strategies are systematic
and not due to random error. Our findings impose important restrictions on theories
of risky choice. A unifying characterization of preferences explaining both, market
participation and market transactions requires individuals to have a preference
for positive skewness (to select into the market) and an aversion towards spread
(to engage in risk reduction strategies). We argue that such risk preferences are
consistent with a wide array of behaviors outside of betting markets. When exploring
the strategies bettors choose on the market, we find that a considerable fraction
of bettors (about one-third of our sample) combines different bets into a portfolio
of bets. By doing so, they hedge the risk of the single bet and reduce the overall
risk exposure. Interestingly, the majority of subjects engaging in such strategies
follows a strategy best described as *native diversification*. Specifically, these
bettors split up equally the total betting amount across a number of events. We
analyze the characteristics of these hedges and establish a link to behavior on
financial markets.​

Aversion to risk of regret and preference for positively skewed risks

Economics & Decision Sciences

Speaker: Christian Gollier

16 March 2017 - T017 - From 2:00 pm to 3:00 pm


We assume that the ex-post utility of an agent facing a menu of lotteries depends upon the actual payoff together with its forgone best alternative, thereby allowing for the ex-post emotion of regret. An increase in the risk of regret is obtained when the actual payoff and its forgone best alternative are statistically less concordant in the sense of Tchen (1980). The aversion to any such risk of regret is thus equivalent to the supermodularity of the bivariate utility function. We show that more regret-risk-averse agents are more willing to choose the risky act in a one-risky-one-safe menu, in particular when the payoff of the risky choice is highly skewed. This is compatible with the "possibility effect" that is well documented in prospect theory. Symmetrically, we define the aversion to elation-risk that can prevail when the ex-post utility is alternatively sensitive to the forgone worst payoff. We show that elation-risk-seeking is compatible with the "certainty effect". We finally show that regret-risk-averse and elation-risk-seeking people behave as if they had rank-dependent utility preferences with an inverse-S shaped probability weighting function that reproduces estimates existing in the literature.

Persuasion with Correlation Neglect

Economics & Decision Sciences

Speaker: Ronny Razin

9 March 2017 - T017 - From 11:00 am to 12:00 pm

We consider a persuasion problem in which the receiver has correlation neglect, that is, he is not aware that the signals he obtains arise from a joint distribution function with potential correlation. We show how a strategic sender, who cannot alter the marginal distributions of signals, will design a joint information structure with correlation to best persuade the receiver. Specifically, the sender will in general negatively correlate good news and positively correlate bad news across these signals. We also show that when the sender is able to choose the marginal distributions (which are known to the receiver), he will design marginal information structures which are informative but never too much. When the receiver is not necessarily paying full attention to all signals, the sender will reduce the number of available signals, while otherwise the sender would prefer to have as many signals as possible in his disposal. Finally we look at the welfare implications of persuasion from the point of view of the receiver. We compare our basic model to three different benchmarks; the case of independent signals, the case of competition among two senders and the case of a monopolist facing a mixed audience in which the receiver is rational with certain probability. We find that independence is always better than facing a malevolent sender who favours the action that is ex-ante less appealing to the receiver. However facing a malevolent sender who favours the ex-ante preferred action does sometimes dominate independence. Competition among two senders is also sometimes worse than facing a monopolist who favours the ex-ante preferred action. Finally, a receiver with correlation neglect prefers sometimes to be surrounded by naive receivers.

Non-Stationary Additive Utility and Time Consistency

Economics & Decision Sciences

Speaker: Nicolas Drouhin
ENS Cachan

23 February 2017 - T015 - From 1:30 pm to 2:30 pm