Trust and adaptive learning in implicit contracts

Trust is a phenomenon that still is quite rarely investigated in agency theory. According to a common intuitive reasoning, trust should develop over time and it should evolve even in finite implicit-contract relationships. However, if the contracting parties are fully rational, theory cannot explain this. We therefore extend the standard model and develop a model of a finite relationship where the principal promises to pay a voluntary period-by-period bonus if the agent has worked according to the implicit agreement. The agent is boundedly rational and unable to foresee the principal’s future bonus decisions. The principal is, with some probability, honest and pays a promised bonus even in situations where ex-post cheating would be optimal. Based on the agent’s adaptive learning process, we show how trust evolves depending on the principal’s bonus-payment strategy. Depending on different levels of the agent’s bounded rationality, we derive the principal’s optimal pure strategy as part of a unique equilibrium. In an extension we show that the results are robust if the agent has bounded recall. The optimal strategy pattern mirrors a subset of trigger strategies which is exogenous in the standard model. Our findings imply that subjective incentives are more effective with increasing tenure of employees, or, that the optimal level of trust depends on how fast work environments change.     

Do Central Bank Liquidity Facilities Affect Interbank Lending Rates?

In response to the global financial crisis that started in August 2007, central banks provided extraordinary amounts of liquidity to the financial system. To investigate the effect of central bank liquidity facilities on term interbank lending rates near the start of the crisis, we estimate a six-factor arbitrage-free model of U.S. Treasury yields, financial corporate bond yields, and term interbank rates. This model can account for fluctuations in the term structure of credit and liquidity spreads observed in the data. A significant shift in model estimates after the announcement of the liquidity facilities suggests that these central bank actions did help lower the liquidity premium in term interbank rates.     

Exposure assessment in different occupational groups at a hospital using Quick Exposure Check (QEC) - a pilot study

In order to test the feasibility and sensitivity of the ergonomic exposure assessment tool Quick Exposure Check (QEC), a pilot-study was conducted. The aim was to test QEC in different occupational groups to compare the exposure in the most common work task with the exposure in the work task perceived as the most strenuous for the neck/shoulder region, and to test intra-observer reliability. One experienced ergonomist observed 23 workers. The mean observation time was 45 minutes, waiting time and time for complementary questions included. The exposure scores varied between the different occupational groups as well as between workers within the occupational groups. Eighteen workers rated their most common work task as also being the most strenuous for the neck/shoulder region. For the remaining five workers, the mean exposure score were higher both for the neck and shoulder/arm in the most common work task. Intra-observer reliability shows agreement in 86% of the exposure interactions in the neck and in 71% in the shoulder/arm. QEC seems to fulfill the expectations of being a quick, sensible and practical exposure assessment tool that covers physical risk factors in the neck, upper extremities and low back.     

“I was <Emphasis Type="Italic">that</Emphasis> close”: Investigating Players’ Reactions to Losses,Wins, and Near-Misses on Scratch Cards

While scratch cards are a popular, accessible, and inexpensive form of gambling, very little is known about how they affect and influence the player. This study sought to understand the physiological and subjective experience of scratch card play, with special emphasis on the effect of near-miss outcomes (i.e. uncovering two out of three “grand prize” symbols needed to win said prize), which are remarkably prevalent in scratch card games. Thirty-eight undergraduate students from the University of Waterloo each played two custom scratch card games and experienced three types of outcomes (losses, wins and near-misses) while their skin conductance levels (SCLs) and post-reinforcement pauses were recorded. Each participant also rated each outcome in terms of its subjective level of arousal, valence, and frustration. Our results indicate that players interpreted near-misses as negatively valenced, highly arousing, frustrating losses, and were faster to move onto the next game following this type of outcome than following winning outcomes. Additionally, near-miss outcomes were associated with the largest amount of change in SCLs as the outcome was revealed. This work has implications for the problem gambling literature as it provides evidence of the frustration hypothesis of near-misses in scratch cards, and is the first study to examine the physiological and psychological experiences of scratch card players.     

Self-deception in public relations. A psychological and sociological approach to the challenge of conflicting expectations

The paper enquires into the role of self-deception in public relations struggling with discrepancies between heterogeneous stakeholder expectations and organizational interests and particularly between normative expectations of truthfulness and practical temptations of deception. Drawing on theoretical foundations of evolutionary psychology and sociology, we propose a framework for the origins, drivers, and functions of self-deception in public relations. The analysis reveals that under specific conditions self-deception can be an essential mechanism in public relations because it relieves practitioners from tensions driven by conflicting perceptions of truth and legitimacy. Self-deception is most likely to occur in situations of cognitive dissonance for practitioners to balance internal information processing and in situations of normative pressure when practitioners seek to comply with external expectations.     

The Impact of Mega‐Catastrophes on Insurers: An Exposure‐Based Analysis of the U.S. Homeowners’ Insurance Market

Insurance is a key risk‐sharing mechanism that protects citizens and governments from the losses caused by natural catastrophes. Given the increase in the frequency and intensity of natural catastrophes over recent years, this article analyzes the performance effects of mega‐catastrophes for U.S. insurance firms using a measure of market expectations. Specifically, we analyze the share price losses of insurance firms in response to catastrophe events to ascertain whether mega‐catastrophes significantly damage the performance of insurers and whether different types of mega‐catastrophes have different impacts. The main message from our analysis is that the impact of mega‐catastrophes on insurers has not been too damaging. While the exact impact of catastrophes depends on the nature of the event and the degree of competition within the relevant insurance market (less competition allows insurers to recoup catastrophe losses through adjustments to premiums), our overall results suggest that U.S. insurance firms can adequately manage the risks and costs of mega‐catastrophes. From a public policy perspective, our results show that insurance provides a robust means of sharing catastrophe losses to help reduce the financial consequences of a catastrophe event.     

Multiplicative Bias Correction in Kernel Hazard Estimation

A multiplicative bias reducing technique is introduced for kernel hazard estimation. Similar methods were introduced by Linton & Nielsen (1994) in non-parametric regression and Jones et al . (1995) in non-parametric density estimation. A simulation study indicates good performance of the method. An application is provided on the development of Danish mortality.     

Living Apart Together: Alters- und Kohortenabhängigkeit einer heterogenen Lebensform

Living apart together (LAT) is a committed partnership between two partners living in different households. It is ignored in most social surveys (e. g. the German Mikrozensus) because these focus on partners sharing the same household. The German socio-economic panel (SOEP) provides the unique opportunity to study LAT partnerships separately from singledom and cohabitation since 1992. The current study used this opportunity to test four hypotheses about LAT: LAT increased historically; decreases until the end of the female reproductive period (age 40 years); is thereafter a life form of its own without transition into co-residence; and at all ages is less stable than cohabitation and marriage. The results confirmed all four hypotheses.