A note on uncertainty and discounting in models of economic growth

The implications of uncertainty for appropriate discounting in models of economic growth have been studied at some length, notably, (Review of Economic Studies, 36:153–163; 1969) and (Journal of Public Economics, 85:149–166; 2002). A detailed account has now appeared in Journal of Risk and Uncertainty, 37:141–169; 2008, sections 4 and 5 (pp. 160–166). One interesting, if perhaps minor, aspect is that under certain circumstances, there appeared to be no solution or at least no satisfactory one. More importantly, the formulas are usually given for the log normal case and are somewhat complicated and hard to interpret intuitively. I show here that assuming a general distribution for returns to capital gives simpler and more understandable results.      

A note on decisions under uncertainty: the impact of the choice of the welfare measure

The paper addresses the question, how policy decisions under uncertainty depend on the underlying welfare concept. We study three different welfare measures: The first is directly based on the ex ante (expected) utility of a representative consumer whereas the second relies on an ex ante and the third on an ex post valuation of policy changes compared to the status quo. We show that decisions based on these measures coincide if and only if risk-neutral expected utility maximization is applied. Differences between the decisions are analyzed for both, risk-averse expected utility maximization and the MaxiMin criterion. For risk-averse decision makers, differences between the first and the second concept arise if the absolute risk-aversion of the decision maker is not constant in income. For risk-aversion and the MaxiMin criterion, the effort levels to provide a public good based on an optimization of ex post utility changes exceed those based on the first or second concept. Implications for environmental policy decisions based on the concepts of abatement costs and benefits from abatement are discussed.     

The determinants of tobacco control in Europe: A research note

A series of Probit regressions are estimated to assess the determinants of tobacco control laws in a cross-section of European countries. Although significance is sparse amongst several of the variables included in the analysis, we do find a tendency for the probability of tobacco control to be higher in lower income non-EU countries, with larger shares of government health care expenditures.     

The attraction of uncertainty: Interactions between skill and levels of uncertainty in market-entry games

The experimental market entry paradigm has been used to illuminate the role of self-assessed skill in risk taking. Specifically, success only accompanies entry if a participant is one of the better ranked entrants on the skill criterion. We investigate what happens when participants face an additional source of uncertainty that perturbs relative skill rankings. Interestingly, this has asymmetric effects. On average, chances of success are increased for those with low rankings but decreased for those with high rankings. Thus, we predicted that the additional uncertainty would lead to more entry by the former but less by the latter. Our data supported the first prediction but, for those with high skill rankings, the existence of additional uncertainty made little difference. Finally, although we observed “excess entry” (i.e., too many participants entered markets), this could not be attributed to overconfidence. We conclude by contrasting our results with others in the literature.     

The impact of Indian gaming on crime in New Mexico: A research note

The complexity of the relationship between gambling and crime make empirical establishment of a relationship between the two difficult. Focusing on one state, we examine the impact of Indian gaming on crime in New Mexico. Specific crime rates in New Mexico counties with tribal gaming are discussed. Comparisons of the rates of specific crimes are made between New Mexico counties with tribal gaming and those without.     

Social investment agenda setting: A personal note

This article reconstructs how, under the umbrella of the Europea Union (EU), discreet opportunities for EU social policy agenda setting opened for academic expertise from the late 1990s to the 2020s. This began with the Dutch presidency of the EU in the first half of 1997, endorsing the notion of ‘social policy as a productive factor’, followed by the 2000 Lisbon strategy for Growth and Social Cohesion in the open economy. The social investment landmark publication was Why We Need a New Welfare State, written by Gøsta Esping-Andersen et al., for the Belgian presidency of 2001. Ultimately, cumulative academic insights and feedback from country-specific reform experiences found their synthesis in the Social Investment Package in 2013. EU political codification of social investment took effect with the adoption of the European Pillar of Social Rights in December 2017. The paper concludes on the future for social investment with some personal reflections as an engaged scholar.     

A variational model of preference under uncertainty

A familiar example devised by Daniel Ellsberg to highlight the effects of event ambiguity on preferences is transformed to separate aleatory uncertainty (chance) from epistemic uncertainty. The transformation leads to a lottery acts model whose states involve epistemic uncertainty; aleatory uncertainty enters into the statedependent lotteries. The model proposes von Neumann-Morgenstern utility for lotteries, additive subjective probability for states, and the use of across-states standard deviation weighted by a coefficient of aversion to variability to account for departures from Anscombe-Aumann subjective expected utility. Properties of the model are investigated and a partial axiomatization is provided.     

A further exploration of the uncertainty effect

Individual valuation of a binary lottery at values less than the lottery’s worst outcome has been designated as the “uncertainty effect”. Our paper aims to explore the boundary conditions of the uncertainty effect by investigating a plausible underlying process and proposing two possible methods. First, we examine how providing an exogenous evaluation opportunity prior to judging the value of the lottery affects individuals’ judgments, and find that first valuing the worst outcome and then the lottery eliminates the uncertainty effect. Second, we explore whether introducing additional cognitive load dampens how far decision makers correct their initial evaluations, and find that additional cognitive load is able to eliminate the uncertainty effect.     

Models of economic planning under uncertainty: A selective survey and appraisal

Uncertainty and risk have played significant roles in policy making, at the micro and macro levels, from formulation of policy models to their actual implementation in several countries. The impact of risk aversion on policy making has differedm however, both in magnitude and intensity. Thus, for less developed countries with large commodity exports, stabilization policies have played a role as important as those for income growth and employment; for centrally planned economies, the investment cycles leading to large-scale divergences of actual from planned targets in strategic sectors have led policy makers to consider the need for building adequate safety margins in the planning process. Finally, for developed economies, the applied theory of indicative planning and decentralization has stressed the various informational gaps and competing risks that may impede an efficient and cooperative solution between private and public sectors. A selective survey and appraisal of the planning methods as they relate to risk and uncertainty is attempted here for less developed, centrally planned, and developed market economies.     

The Tiger Woods phenomenon: a note on biracial identity

Traditional race based models exclude the unique developmental dynamics of biracial Americans such as “Tiger” Woods. Conversely, a substantial portion of the scholarly literature emphasizes social experience rather than physiological attributes as the keystone to individual identity development. In the aftermath biracial Americans are conflicted. In an effort to ensure their psychic health social scientist scholars and practitioners must inculcate a human development across the life span model to accommodate the nation’s increasing level of racial and cultural miscegenation.     

The limits of inequality: Public support for social policy across rich democracies

Does public opinion react to inequality, and if so, how? The social harms caused by increasing inequality should cause public opinion to ramp up demand for social welfare protections. However, the public may react to inequality differently depending on institutional context. Using ISSP and WID data (1980?2006), we tested these claims. In liberal institutional contexts (mostly English‐speaking), increasing income inequality predicted higher support for state provision of social welfare. In coordinated and universalist contexts (mostly of Europe), increasing inequality predicted less support. Historically higher income concentration predicted less public support, providing an account of the large variation in inequality within the respective liberal and coordinated contexts. The results suggest opinions in liberal societies – especially with higher historical inequality – reached the limits of inequality, reacting negatively; whereas in coordinated/universalist societies – especially with lower historical inequality – opinions moved positively, as if desiring more inequality.     

A note on the prisoner's dilemma

This paper clarifies some basic concepts or assumptions of the prisoner's dilemma, asserts the independence between the two agentsA andB, and advocates the application of the dominance principle of decision theory to the prisoner's dilemma. It discusses several versions of the prisoner's dilemma, including the one-shot and repeated cases of a noncooperative game from a purely egoistic point of view. The main part of this paper, however, is a study of the problem from a moral point of view through a special decision-theoretic approach. Morality is taken into account by incorporating the utility of the feeling of moral satisfaction for the agent, as a part of the total utility for the agent, into the decision-theoretic model. In this way the problem will appear as a purely technical decision problem, and the conflicts between various assumptions, or the dilemma caused by the problem, will no longer exist. It is also pointed out that in a more general case, for some values of the coefficient of moralityk, dominance will not exist so that the dominance principle will not be applicable.     

Non-expected utility risk premiums: The cases of probability ambiguity and outcome uncertainty

This paper discusses two problems. (a) What happens to the conditional risk premium that a decision maker is willing to pay out of the middle prize in a lottery to avoid uncertainty concerning the middle prize outcome, when the probabilities of other prizes change? (b) What happens to the increase that a decision maker is willing to accept in the probability of an unpleasant outcome in order to avoid ambiguity concerning this probability, when this probability increases? We discuss both problems by using anticipated utility theory, and show that the same conditions on this functional predict behavioral patterns that are consistent both with a natural extension of the concept of diminishing risk aversion and with some experimental findings.     

The classification of parametric choices under uncertainty: analysis of the portfolio choice problem

This paper describes the admissible classes of parametric distribution functions of return portfolios and analyzes their consistency with the maximization of the expected utility. In particular, we present a general theory and a unifying framework with the following aims: (1) studying the implications of the classical market restrictions on the portfolio distributions; (2) establishing general rules of ordering, when the uncertain prospect depends by a finite number of parameters; (3) understanding how a dispersion measure has to be used, in order to obtain the investors' optimal portfolios.     

A possibilistic hierarchical model for behaviour under uncertainty

Hierarchical models are commonly used for modelling uncertainty. They arise whenever there is a `correct' or `ideal' uncertainty model but the modeller is uncertain about what it is. Hierarchical models which involve probability distributions are widely used in Bayesian inference. Alternative models which involve possibility distributions have been proposed by several authors, but these models do not have a clear operational meaning. This paper describes a new hierarchical model which is mathematically equivalent to some of the earlier, possibilistic models and also has a simple behavioural interpretation, in terms of betting rates concerning whether or not a decision maker will agree to buy or sell a risky investment for a specified price. We give a representation theorem which shows that any consistent model of this kind can be interpreted as a model for uncertainty about the behaviour of a Bayesian decision maker. We describe how the model can be used to generate buying and selling prices and to make decisions.