Estimating subjective probabilities

Subjective probabilities play a central role in many economic decisions and act as an immediate confound of inferences about behavior, unless controlled for. Several procedures to recover subjective probabilities have been proposed, but in order to recover the correct latent probability one must either construct elicitation mechanisms that control for risk aversion, or construct elicitation mechanisms which undertake “calibrating adjustments” to elicited reports. We illustrate how the joint estimation of risk attitudes and subjective probabilities can provide the calibration adjustments that theory calls for. We illustrate this approach using data from a controlled experiment with real monetary consequences to the subjects. This allows the observer to make inferences about the latent subjective probability, under virtually any well-specified model of choice under subjective risk, while still employing relatively simple elicitation mechanisms.     

Vanishing senses—restoration of sensory functions by electronic implants

Is the endeavour to restore perceptive brain functions by electronic implants the first step on the way to create bionic cyborgs? Can we augment or multiply our senses by directly contacting computer chips to the brain? Will bio-implants influence and permanently change human psyche?Almost 50 years ago, the foundation of the new field of neuroprosthetics propelled research aimed at devising a seamless connection between the human nervous system and microelectronic implants.The complexity of sensory perception often renders the task of assessing efficacy and side effects of a sensory implant impossible when computer simulation and animal experimentation alone are employed. Historical development in this field has shown that some of the evaluation has to be done in investigations performed directly in the human.The consequences of such a technology will not be confined to medicine alone. This paper describes its development, state of the art, limiting factors, and future possibilities. It offers an introduction into the elementary prerequisites of neural interfacing as a basis for argumentation in the upcoming public debate.The advancement of sensory implants for the restitution or augmentation of impaired brain function requires a moral and ethical position not only of the scientist involved, but of all the society, similar to the fields of psychopharmacology and stem cell research.     

Hedonic price indices for the Paris housing market

Summary: In this paper, we calculate a transaction–based price index for apartments in Paris (France). The heterogeneous character of real estate is taken into account using an hedonic model. The functional form is specified using a general Box–Cox function. The data basis covers 84 686 transactions of the housing market in 1990:01–1999:12, which is one of the largest samples ever used in comparable studies. Low correlations of the price index with stock and bond indices (first differences) indicate diversification benefits from the inclusion of real estate in a mixed asset portfolio.*This paper has been developed at the Research Program Real Estate Finance at Goethe-University of Frankfurt/Main (Germany). We gratefully acknowledge iii Internationales Immobilien Institut, IVG Holding AG and Stiftung Rheinische Hypothekenbank for their financial support. For further information, see www.real-estate-finance.de. We thank the participants of the 8th Conference of the European Real Estate Society (ERES), the International Conference of the American Real Estate and Urban Economics Association (AREUEA), the 10th Global Finance Conference 2003 and the anonymous referees for helpful comments, which improved the paper substantially.     

Complexity analysis for maximum flow problems with arc reversals

We provide a comprehensive study on network flow problems with arc reversal capabilities. The problem is to identify the arcs to be reversed in order to achieve a maximum flow from source(s) to sink(s). The problem finds its applications in emergency transportation management, where the lanes of a road network could be reversed to enable flow in the opposite direction. We study several network flow problems with the arc reversal capability and discuss their complexity. More specifically, we discuss the polynomial time algorithms for the maximum dynamic flow problem with arc reversal capability having a single source and a single sink, and for the maximum (static) flow problem. The presented algorithms are based on graph transformations and reductions to polynomially solvable flow problems. In addition, we show that the quickest transshipment problem with arc reversal capability and the problem of minimizing the total cost resulting from arc switching costs are NP\mathcal{NP} -hard.     

Zwischen Staatsbedürftigkeit und Marktaffinität. Beeinflussen Wohneigentum und Erbschaften sozialpolitische Präferenzen?

Despite considerable inequalities, the long period of prosperity has led to an increase of wealth and assets in broad parts of the population. The article builds on the thesis that this “collective upgrading” is accompanied by a change of preferences concerning the role of the state and the market in matters of social security. On the basis of this assumption, we ask whether there is a relationship between home ownership and the receipt of a larger inheritance/gift on the one hand, and social policy preferences on the other hand. In order to answer this question, we analyze—based on the German Socio-Economic Panel—group-specific preferences of taking responsibility for financial security in old age in Germany in 2002 as well as their change between 1997 and 2002. Our results not only show that homeowners and homebuyers are more sceptical towards state solutions and more affine towards market solutions in 2002 than tenants, but also that in the course of time the former more strongly tend towards market solutions than the latter. The same is valid for the difference between heirs/donees and non-heirs/non-donees. Therefore, it can be concluded that the increase of wealth and the privatisation of retirement provision were an essential precondition for an increasing scepticism towards governmental redistribution ambitions.     

Determinanten der Vorstandsvergütung

Using a novel, hand-collected data set covering all German non-financial firms listed in the Prime Standard of FWB (Frankfurt Stock Exchange), we examine determinants of executive compensation in German listed firms. We distinguish three potential determinants: firm characteristics, firm performance, and corporate governance characteristics. While we find that simple firm characteristics like size and industry affiliation together with time effects explain more than 60 % of variation in overall compensation, performance characteristics are economically inconsequential for the explanation of compensation levels. When we distinguish between widely held firms and firms with a large blockholder, we find that the latter grant compensation packages that are smaller, less sensitive to the firm’s stock market performance but more sensitive to the firm’s operating performance. Finally, we confirm that supervisory board characteristics also affect the level of executive compensation in German firms. Overall, our findings suggest that although the corporate governance environment in Germany has changed dramatically during the last decade, German listed firms are still exposed to high agency costs.     

Opposite Trends in the Regulation of Pornography? Policy Differentiation and Policy Convergence Across 26 Countries Between 1960 and 2010

In recent decades, the regulation of pornography has been confronted with challenges emerging from cultural change, economic interests, and technological progress. As a result, the respective regulatory frameworks have changed substantially in many countries. These changes have been accompanied by fierce political struggles and societal value conflicts. However, there are few comparative studies on the reactions of national governments to these problems. In this article, we present new empirical data on the regulation of pornography in 26 countries between 1960 and 2010. To assess regulatory change, we rely on a new measurement approach that considers the extent to which governments intervene into individual freedoms and the degree to which noncompliance with these rules is actually sanctioned. Our analysis reveals a trend toward more permissive styles of pornography regulation. However, this trend is accompanied by growing regulatory specialization and a convergence toward more interventionist regimes for special types of pornography.     

A generalized analytic solution to the win ratio to analyze a composite endpoint considering the clinical importance order among components

A composite endpoint consists of multiple endpoints combined in one outcome. It is frequently used as the primary endpoint in randomized clinical trials. There are two main disadvantages associated with the use of composite endpoints: a) in conventional analyses, all components are treated equally important; and b) in time‐to‐event analyses, the first event considered may not be the most important component. Recently Pocock et al. (2012) introduced the win ratio method to address these disadvantages. This method has two alternative approaches: the matched pair approach and the unmatched pair approach. In the unmatched pair approach, the confidence interval is constructed based on bootstrap resampling, and the hypothesis testing is based on the non‐parametric method by Finkelstein and Schoenfeld (1999). Luo et al. (2015) developed a close‐form variance estimator of the win ratio for the unmatched pair approach, based on a composite endpoint with two components and a specific algorithm determining winners, losers and ties. We extend the unmatched pair approach to provide a generalized analytical solution to both hypothesis testing and confidence interval construction for the win ratio, based on its logarithmic asymptotic distribution. This asymptotic distribution is derived via U‐statistics following Wei and Johnson (1985). We perform simulations assessing the confidence intervals constructed based on our approach versus those per the bootstrap resampling and per Luo et al. We have also applied our approach to a liver transplant Phase III study. This application and the simulation studies show that the win ratio can be a better statistical measure than the odds ratio when the importance order among components matters; and the method per our approach and that by Luo et al., although derived based on large sample theory, are not limited to a large sample, but are also good for relatively small sample sizes. Different from Pocock et al. and Luo et al., our approach is a generalized analytical method, which is valid for any algorithm determining winners, losers and ties. Copyright © 2016 John Wiley & Sons, Ltd.     

Considering the shareholder perspective: value-based management systems and stock market performance

We empirically study the use of value-based management systems in listed German firms and examine implications for firms’ stock market performance. Using a novel, hand-collected data set covering 1,083 firm years from 2002 to 2008, we find that value-based management systems become increasingly common. Specifically, in 2008 42% of our sample firms have implemented such a system. In the empirical analysis, we find that firms implementing value-based management systems earn both statistically significant and economically substantial abnormal stock market returns measured within a 2-year adoption phase. These excess returns are not jeopardized by poor post-adoption returns. In the analysis, we carefully control for risk and account for endogeneity concerns. Overall, our findings support the view that shareholders consider the adoption of a value-based management system as a credible signal that management will focus on shareholder interests and that such systems actually increase shareholder value.