Overconfident investors and probability misjudgments

This paper explores systematic distortions of subjective probabilities by overconfident investors. In agreement with many non-expected utility theories, our devised setup acknowledges nonlinear weighting of physical probabilities by both rational and overconfident investors. Overconfidence – assumed to be higher after a history of gains and lower after a history of losses – changes these probability transformations. Using US asset price data, overconfident investors are found to be more optimistic than rational investors about future prospects.     

Urn Sampling and the Proportional Hazard Model

This paper investigates the urn sampling analogue for the score statistic relating survival to covariates assuming a proportional hazard model. The exact permutation distribution can be calculated as well as the exact low order moments for arbitrary censoring patterns. The asymptotic distribution of the score statistic is an easy consequence. The method is naturally extended to deal with the multivariate case, time varying covariates and interval censoring. Finally the relationship between the censoring process, the survival times and covariates are studied considering different reference sets for the distribution of the score statistic. Some assumptions about the censoring process are investigated and as a consequence the effect of censoring is clarified.     

Double Sampling Designs in Multivariate Linear Models with Missing Variables

We provide a method for finding the optimal double sampling plan for estimating the mean value of a continuous outcome. It is assumed that the fallible and true outcome data are related by a multivariate linear regression model where only some of the explanatory variables are sampled. Conditions under which double sampling is preferred over standard sampling plans are determined. An application of the method to a well-known data set on air pollution is presented.     

Testing for order among K populations: theory and examples

Testing for stochastic order among K populations is a common and important problem in statistical practice. It arises in the analysis of both planned experiments and observational studies. The authors develop a new nonparametric test for order among K populations that can accommodate any stochastic ordering. The test is based on a maximally selected chi‐bar‐square statistic. The authors find its limiting distribution and use simulations to derive critical values. Three important examples are used to illustrate the applicability of the general method. The authors find that the new tests outperform the existing methods in many practical cases. The Canadian Journal of Statistics 38: 97–115; 2010 © 2009 Statistical Society of Canada     

Stratified Double Sampling with Continuous Outcomes: Design and Analysis

We provide a method for estimating the sample mean of a continuous outcome in a stratified population using a double sampling scheme. The stratified sample mean is a weighted average of stratum specific means. It is assumed that the fallible and true outcome data are related by a simple linear regression model in each stratum. The optimal stratified double sampling plan, i.e. , the double sampling plan that minimizes the cost of sampling for fixed variances, or alternatively, minimizes the variance for fixed costs, is found and compared to a standard sampling plan. The design parameters are the total sample size and the number of doubly sampled units in each stratum. We show that the optimal double sampling plan is a function of the between-strata and within-strata cost and variance ratios. The efficiency gains, relative to standard sampling plans, under broad set of conditions, are considerable.     

New tests for stochastic order with application to case control studies

It is shown that if a binary regression function is increasing then retrospective sampling induces a stochastic ordering of the covariate distributions among the responders, which we call cases, and the non-responders, which we call controls. We also show that if the covariate distributions are stochastically ordered then the regression function must be increasing. This means that testing whether the regression function is monotone is equivalent to testing whether the covariate distributions are stochastically ordered. Capitalizing on these new probabilistic observations we proceed to develop two new non-parametric tests for stochastic order. The new tests are based on either the maximally selected, or integrated, chi-bar statistic of order one. The tests are easy to compute and interpret and their large sampling distributions are easily found. Numerical comparisons show that they compare favorably with existing methods in both small and large samples. We emphasize that the new tests are applicable to any testing problem involving two stochastically ordered distributions.     

IS THE ENDOWMENT EFFECT AN EXPECTATIONS EFFECT?

A hallmark result within behavioral economics is that individuals' choices are affected by current endowments. A recent theory due to Kőszegi and Rabin ( 2006 , Quarterly Journal of Economics, 121, 1133–1165) explains such endowment effect with a model of expectations‐based reference‐dependent preferences. Departing from past work, we conduct complementary experiments to disentangle expectations—verified probabilistic beliefs held by subjects—from other features of endowment—such as “assignment” to a good—hence allowing us to compare the effect of expectations with that of other variations. While mere assignment can affect choices, we do not find a large role in the effect for Kőszegi–Rabin expectations.     

Improving an estimator of Hsieh and Turnbull for the binormal ROC curve

The estimator of Hsieh and Turnbull (1996) for the binormal receiver operating characteristic (ROC) curve is extended from grouped to ungrouped data. The new estimator is shown to be consistent and asymptotically normally distributed, and simulation results show that it outperforms Hsieh and Turnbull's original estimator.     

Terror and trade of individual investors

A great number of psychological studies document the influence of emotions on individuals’ decision-making processes. This paper contributes to this literature by analyzing the possible impact of terrorism on financial trade by individual investors. Using account data for over 3000 households obtained from a large Israeli bank, we look into reactions of common stock investments to terrorist incidents in the years 1998–2002. The empirical analysis indicates that terror has a significant adverse effect on actual trade, possibly limiting the scope of risk-sharing available through traded securities. Several psychological explanations for investors’ reluctance to trade are provided. Amongst them are the increase in public fear (resulting in pessimistic risk estimates and risk averse choices); the sense of ambiguity caused by terror; repercussions of anxiety and depression disorders; a desire to avoid future regret. Our results add to the recent literature documenting the harmful effects terrorist acts have on various facets of the economy.     

Private security and military contractors: A troubling oversight

Though private military and security companies (PMSCs) have been addressed extensively in the literature, little research has been done on the contractors themselves, leaving us in the dark as to who these individuals are. In this article, we focus on the critical case of the United States armed services and argue that two broad developments have been converging that both point to the need for new, microlevel sociological research on the people who are involved in the global PMSC industry. To this end, we first draw from an extensive political science literature to illustrate the rise of the PMSCs and concomitant evolution of the security sector, while noting a new trend that points to the need for moving from the macrosocial to the microsocial level of inquiry. Second, we indicate the challenges contractors pose to the sociological paradigm of military professionalism: These suggest a need to move from the mesosocial to the microsocial level of inquiry. We conclude by reviewing the existing research on the demographics of the sector and then indicating the troubling gaps in our current understanding of this critical sector of the national security apparatus.