A new index of perceived inflation: Assumptions, method, and application to Germany

After the introduction of Euro notes and coins in January 2002, throughout the Economic and Monetary Union member countries a substantial discrepancy was evident between inflation as measured by the official consumer price indices (CPI) and that perceived by the general public. The starting point of this paper is the German case. First, the public controversy in Germany after the Euro changeover is sketched. Then conventional approaches to perceived inflation are reviewed including the many studies published by the German Federal Statistical Office as well as the perceived inflation balance generated within the EU Consumer Survey. In the main part of the paper, a novel approach to measuring perceived inflation is developed, the Index of Perceived Inflation (IPI). First, the hypotheses underlying this index are presented. Then, the IPI is derived. In the forth section the IPI is applied to the German data. The IPI time series for Germany from 1996 through 2005 shows a particularly high perceived inflation around the introduction of Euro notes and coins. In the fifth section the hypotheses of inflation perception underlying the IPI are critically reviewed. The paper closes with a conclusion on the insights gained through computation of the IPI.     

Competition of politicians for wages and office

We examine a model in which two politicians compete for office and for wages. Their remunerations are either set by the public or are offered competitively by the candidates during campaigns. Our main finding shows that competitive wage offers by candidates lead to lower social welfare than remunerations predetermined by the public, since wage competition may lead to higher wage costs or to the election of less competent candidates. I would like to thank Alexandrina Braack, Peter Bernholz, Robert Dur, Amihai Glazer, Volker Hahn, Stephan Imhof, Verena Liessem, Christian Schultz, Otto H. Swank, conference participants at the annual meeting of the Public Choice Society 2000, the annual conference of the Royal Economic Society in Durham 2001, the annual congress of the European Economic Association 2001 in Lausanne, seminar participants in Heidelberg and at the University of California, Irvine, and two referees for their valuable suggestions and comments. A previous version of this article can be found under doi:.     

Competition of politicians for wages and office

We examine a model in which two politicians compete for office and for wages. Their remunerations are either set by the public or are offered competitively by the candidates during campaigns. Our main finding shows that competitive wage offers by candidates lead to lower social welfare than remunerations predetermined by the public, since wage competition may lead to higher wage costs or to the election of less competent candidates. I would like to thank Alexandrina Braack, Peter Bernholz, Robert Dur, Amihai Glazer, Volker Hahn, Stephan Imhof, Verena Liessem, Christian Schultz, Otto H. Swank, conference participants at the annual meeting of the Public Choice Society 2000, the annual conference of the Royal Economic Society in Durham 2001, the annual congress of the European Economic Association 2001 in Lausanne, seminar participants in Heidelberg and at the University of California, Irvine, and two referees for their valuable suggestions and comments.     

Affective reactions influence investment decisions: evidence from a laboratory experiment with taxation

We experimentally investigate the effect of taxation of gains and losses on investment behavior. Based on the insights of economic research and psychological concepts, we expect subjects to react to taxation with behavioral and affective changes. Our main results are threefold: first, we show that taxation on gains and the possibility to deduct losses bias investment behavior, but in different directions. Since net payoffs are identical across all tax scenarios and therefore the same investment behavior is to be expected, these differences are in contrast to what a standard theory would predict. Second, we observe that different tax regulations have different effects on the affective and cognitive perception of our subjects. Third, with respect to possible connections of the affective and cognitive ratings, tax regulations, and investment decisions, we are able to show that arousal and risk perception fail to influence the decision making of participants, while there is a highly significant influence of valence perception on choice patterns.     

Integrating Household Risk Mitigation Behavior in Flood Risk Analysis: An Agent‐Based Model Approach

Recent studies showed that climate change and socioeconomic trends are expected to increase flood risks in many regions. However, in these studies, human behavior is commonly assumed to be constant, which neglects interaction and feedback loops between human and environmental systems. This neglect of human adaptation leads to a misrepresentation of flood risk. This article presents an agent‐based model that incorporates human decision making in flood risk analysis. In particular, household investments in loss‐reducing measures are examined under three economic decision models: (1) expected utility theory, which is the traditional economic model of rational agents; (2) prospect theory, which takes account of bounded rationality; and (3) a prospect theory model, which accounts for changing risk perceptions and social interactions through a process of Bayesian updating. We show that neglecting human behavior in flood risk assessment studies can result in a considerable misestimation of future flood risk, which is in our case study an overestimation of a factor two. Furthermore, we show how behavior models can support flood risk analysis under different behavioral assumptions, illustrating the need to include the dynamic adaptive human behavior of, for instance, households, insurers, and governments. The method presented here provides a solid basis for exploring human behavior and the resulting flood risk with respect to low‐probability/high‐impact risks.     

Market research with the aid of a smartphone application – a case study

We discuss using the presumed ‘wisdom of the crowd’ to reduce the bullwhip effect in supply chains by enhancing the accuracy of demand forecast. Our case study describes a joint project of a leading European technology company (We chose RAGD as a pseudonym for the company throughout the study.) and the University of Kassel on a smartphone application for end customers to gather early information for this producer’s forecast. Our results confirm the ‘wisdom of the crowd’ hypothesis: A group of experts, in our case technicians who install and maintain RAGD-products, is capable of anticipating market fluctuations six weeks in advance. This only holds true if the ‘crowd’ of technicians is large enough. Our business climate index outperforms the company forecast in the first six months, when on average 22 technicians took part per week. We discuss successes and limitations of the cooperation and provide recommendations for similar projects.     

E-Coaching: Prozess- und Ergebnisevaluation des„Virtuellen Zielerreichungscoachings“

The authors present the design and first results of an ongoing research project. The main emphasis of the research lies on observable and mental processes of the coach and the coachee in and between coaching sessions as well as for the coachee after the coaching. The research is based on a particular e-coaching format named “virtual goal attainment coaching”, consisting of telephone-based coaching sessions combined with by internet mediated questions that the coachee answers with support of the coach. The ambition of this particular type of coaching, since based on empirical findings of coaching success factors and combined with modern media, is to generate excellent results within a short amount of time. Preliminary findings confirm the efficiency and effectiveness of this blended coaching program.     

Consumer Confidence in the Safety of Food and Newspaper Coverage of Food Safety Issues: A Longitudinal Perspective

This study develops a longitudinal perspective on consumer confidence in the safety of food to explore if, how, and why consumer confidence changes over time. In the first study, a theory-based monitoring instrument for consumer confidence in the safety of food was developed and validated. The monitoring instrument assesses consumer confidence together with its determinants. Model and measurement invariance were validated rigorously before developments in consumer confidence in the safety of food and its determinants were investigated over time. The results from the longitudinal analysis show that across four waves of annual data collection (2003–2006), the framework was stable and that the relative importance of the determinants of confidence was, generally, constant over time. Some changes were observed regarding the mean ratings on the latent constructs. The second study explored how newspaper coverage of food safety related issues affects consumer confidence in the safety of food through subjective consumer recall of food safety incidents. The results show that the newspaper coverage on food safety issues is positively associated with consumer recall of food safety incidents, both in terms of intensity and recency of media coverage.