Sentiments

This paper develops a new theory of fluctuations—one that helps accommodate the notions of “animal spirits” and “market sentiment” in unique‐equilibrium, rational‐expectations, macroeconomic models. To this goal, we limit the communication that is embedded in a neoclassical economy by allowing trading to be random and decentralized. We then show that the business cycle may be driven by a certain type of extrinsic shocks which we call sentiments. These shocks formalize shifts in expectations of economic activity without shifts in the underlying preferences and technologies; they are akin to sunspots, but operate in unique‐equilibrium models. We further show how communication may help propagate these shocks in a way that resembles the spread of fads and rumors and that gives rise to boom‐and‐bust phenomena. We finally illustrate the quantitative potential of our insights within a variant of the RBC model.     

Local asymptotic minimax theory for block-decreasing densities

In this paper, we study Lebesgue densities on (0,∞)^d$(0,\infty {)}^d$ that are non-increasing in each coordinate, while keeping all other coordinates fixed, from the perspective of local asymptotic minimax lower bound theory. In particular, we establish a local optimal rate of convergence of the order n^−1/(d+2)$n^{-1/(d+2)}$.     

Dynamic Global Games of Regime Change: Learning,Multiplicity, and the Timing of Attacks

Global games of regime change—coordination games of incomplete information in which a status quo is abandoned once a sufficiently large fraction of agents attack it—have been used to study crises phenomena such as currency attacks, bank runs, debt crises, and political change. We extend the static benchmark examined in the literature by allowing agents to take actions in many periods and to learn about the underlying fundamentals over time. We first provide a simple recursive algorithm for the characterization of monotone equilibria. We then show how the interaction of the knowledge that the regime survived past attacks with the arrival of information over time, or with changes in fundamentals, leads to interesting equilibrium properties. First, multiplicity may obtain under the same conditions on exogenous information that guarantee uniqueness in the static benchmark. Second, fundamentals may predict the eventual fate of the regime but not the timing or the number of attacks. Finally, equilibrium dynamics can alternate between phases of tranquility—where no attack is possible—and phases of distress—where a large attack can occur—even without changes in fundamentals.     

A test for crossing receiver operating characteristic (roc) curves

The receiver operating characteristic (ROC) curve gives a graphical representation of sensitivity and specificity of a prediction model when varying the decision treshold on a diagnostic criterion. A classical test for comparing the overall accuracies for two models -1 and 2- is based on the difference between ROC curves areas - related to its standard error. This test is designed for the situation where ROC curve 1 caps ROC curve 2. Often both curves cross :in this paper, a new test, based on the integrated difference between the curves, is proposed to deal with this situation. In a simulation experiment, the new test was less powerful than the old test for detecting an overall superiority, but much more powerfull against the crossing alternative.     

Commitment vs. Flexibility

We study the optimal trade‐off between commitment and flexibility in a consump‐ tion–savings model. Individuals expect to receive relevant information regarding tastes and thus they value the flexibility provided by larger choice sets. On the other hand, they also expect to suffer from temptation, with or without self‐control, and thus they value the commitment afforded by smaller choice sets. The optimal commitment problem we study is to find the best subset of the individual's budget set. This problem leads to a principal–agent formulation. We find that imposing a minimum level of savings is always a feature of the solution. Necessary and sufficient conditions are derived for minimum‐savings policies to completely characterize the solution. We also discuss other applications, such as the design of fiscal constitutions, the problem faced by a paternalist, and externalities.     

Statistical assessment of multivalued screening tests

When the outcome of a screening test is expressed by the probabilities of k possible outcomes among individuals with a certain physiologic condition and by the corresponding probabilities among individuals without the condition, the screening usefulness of the test depends on the relative likelihood that its result may properly alter the management of a given patient. New statistical methods are introduced to apply the screening usefulness concept to the assessment of combined or multivalued tests. The method is applied to assess the usefulness of genotypes at cytochrome P450 IAI and glutathione-S-transferase-μ as biomarkers of susceptibility to developing lung cancer. The argument and methods developed should be widely applicable to the statistical assessment of screening tests for a wide range of physiologic conditions.     

Correlation-adjusted estimation of sensitivity and specificity of two diagnostic tests

Summary. Models for multiple-test screening data generally require the assumption that the tests are independent conditional on disease state. This assumption may be unreasonable, especially when the biological basis of the tests is the same. We propose a model that allows for correlation between two diagnostic test results. Since models that incorporate test correlation involve more parameters than can be estimated with the available data, posterior inferences will depend more heavily on prior distributions, even with large sample sizes. If we have reasonably accurate information about one of the two screening tests (perhaps the standard currently used test) or the prevalences of the populations tested, accurate inferences about all the parameters, including the test correlation, are possible. We present a model for evaluating dependent diagnostic tests and analyse real and simulated data sets. Our analysis shows that, when the tests are correlated, a model that assumes conditional independence can perform very poorly. We recommend that, if the tests are only moderately accurate and measure the same biological responses, researchers use the dependence model for their analyses.     

Efficient Use of Information and Social Value of Information

This paper analyzes equilibrium and welfare for a tractable class of economies (games) that have externalities, strategic complementarity or substitutability, and heterogeneous information. First, we characterize the equilibrium use of information: complementarity heightens the sensitivity of equilibrium actions to public information, raising aggregate volatility, whereas substitutability heightens the sensitivity to private information, raising cross‐sectional dispersion. Next, we define and characterize an efficiency benchmark designed to address whether the equilibrium use of information is optimal from a social perspective; the efficient use of information reflects the social value of aligning choices across agents. Finally, we examine the comparative statics of equilibrium welfare with respect to the information structure; the social value of information is best understood by classifying economies according to the inefficiency, if any, in the equilibrium use of information. We conclude with a few applications, including production externalities, beauty contests, business cycles, and large Cournot and Bertrand games.     

Correlation analysis of ordered symmetrically dependent observations and their concomitants of order statistics

Given two jointly observed random vectors Y and Z of the same dimension, let Y be a reordered version of Y and Z the resulting vector of concomitants of order statistics. When X is a covariate of interest, also jointly observed with Y, the authors obtain the joint covariance structure of (X, y, Z) and the related correlation parameters explicitly, under the assumption that the vector (X, Y, Z) is normal and that its joint covariance structure is permutation symmetric. They also discuss extensions to elliptically contoured distributions.