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Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Stochastic independence has a complex status in probability theory. It is not part of the definition of a probability measure, but it is nonetheless an essential property for the mathematical development of this theory. Bayesian decision theorists such as Savage can be criticized for being silent about stochastic independence. From their current preference axioms, they can derive no more than the definitional properties of a probability measure. In a new framework of twofold uncertainty, we introduce preference axioms that entail not only these definitional properties, but also the stochastic independence of the two sources of uncertainty. This goes some way towards filling a curious lacuna in Bayesian decision theory.

Mots clés : Stochastic Independence, Probabilistic Independence, Bayesian Decision Theory, Savage

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Agents make predictions based on similar past cases. The notion of similarity is itself learnt from experience by "second-order induction": past cases inform agents also about the relative importance of various attributes in judging similarity. However, there may be multiple "optimal" similarity functions for explaining past data. Moreover, the computation of the optimal similarity function is NP-Hard. We offer conditions under which rational agents who have access to the same observations are likely to converge on the same predictions, and conditions under which they may entertain different probabilistic beliefs.

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

We argue that a precedent is important not only because it changes the relative frequency of a certain event, making it positive rather than zero, but also because it changes the way that relative frequencies are weighed. Specifically, agents assess probabilities of future events based on past occurrences, where not all of these occurrences are deemed equally relevant. More similar cases are weighed more heavily than less similar ones. Importantly, the similarity function is also learnt from experience by "second-order induction". The model can explain why a single precedent affects beliefs above and beyond its effect on relative frequencies, as well as why it is easier to establish reputation at the outset than to re-establish it after having lost it. Finally, we discuss more sophisticated forms of learning, by which similarity is defined not only on cases but also on attributes, and the importance of some attributes, learnt from the data by second-order induction, can also affect the perceived importance of other attributes.

Départements : Economie et Sciences de la décision

This paper shows that bailouts of private agents can optimally take the form of asset purchases, even if this also means paying off external asset holders, in the presence of borrowing constraints and asymmetric information on liquidity needs. The combination of these two ingredients make direct compensation through loans and/or net transfers imperfect. Thus, when more constrained agents are also more exposed to the asset, the compensation through asset purchases becomes desirable. Anticipating these purchases, private agents engage in a collective bet on the defaulting asset, leading to an equilibrium implicit guarantee, where even an intrinsically worthless asset can be traded at a positive price

Mots clés : Implicit guarantees, bailouts, capital ows, capital controls

Départements : Economie et Sciences de la décision

We depart from Savage’s (1954) common state space assumption and introduce a model that allows for a subjective understanding of uncertainty. Within the revealed preference paradigm, we uniquely identify the agent’s subjective state space via her preferences conditional on incoming information. According to our representation, the agent’s subjective contingencies are coarser than the analyst’s states; she uses an additively separable utility with respect to her set of contingencies; and she adopts an updating rule that follows the Bayesian spirit but is limited by her perception of uncertainty. We illustrate our theory with an application to the Confirmatory Bias.

Mots clés : understanding of uncertainty, subjective state space, non-Bayesian updating

Départements : Economie et Sciences de la décision

This paper revisits the ability of central banks to manage private sector's expectations depending on its credibility and how this affects the use of interest rate rules and pegs to achieve monetary policy objectives. When private agents can only provide limited incentives for the central bank to follow a policy, we show that resulting limited credibility allows a central bank to prevents the inflation from diverging by defaulting on past promises if necessary. As a result, the Taylor rule, when expected, anchors inflation expectations on a unique equilibrium path as long as the Taylor principle is satisfied. Finally, we also show that limited credibility restricts the impact of long-term interest rate pegs, so as to make current conditions less dependent on future policy changes.

Mots clés : Taylor principle, Credibility, Forward Guidance

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

We offer a model that combines and generalizes case-based decision theory and expected utility maximization. It is based on the premise that an agent looks ahead and assesses possible future scenarios, but may not know how to evaluate their likelihood and may not be sure that the set of scenarios is exhaustive. Consequently, she also looks back at her memory for past cases, and makes decisions so as to maximize a combined function, taking into account both scenarios and cases. We allow for non-additive set functions, both over future scenarios and over past cases, to capture (i) incompletely specified or unforeseen scenarios, (ii) ambiguity, (iii) the absence of information about counterfactuals, and (iv) some forms of case-to-rule induction ("abduction") and statistical inference. We axiomatize this model. Learning in this model takes several forms, and, in particular, changes the relative weights of the two forms of reasoning.

Départements : Economie et Sciences de la décision

Central banks' announcements that future interest rates will remain low could signal either a weak future macroeconomic outlook - which is bad news - or a future expansionary monetary policy - which is good news. In this paper, we use the Survey of Professional Forecasters to show that these two interpretations coexisted when the Fed engaged into date-based forward guidance policy between 2011Q3 and 2012Q4. We then extend an otherwise standard New-Keynesian model to study the consequences of such heterogeneous interpretations. We show that it can strongly mitigate the effectiveness of forward guidance and that the presence of few pessimists may require keeping rates low for longer. However, when pessimists are sufficiently numerous forward guidance can even be detrimental.

Mots clés : monetary policy, forward guidance, communication, heterogeneous beliefs, disagreement

Départements : Economie et Sciences de la décision, GREGHEC (CNRS), Stratégie et Politique d’Entreprise

Why do some people become entrepreneurs when it is not optimal? We explore this question by disentangling two mechanisms that may have been confounded: overconfidence and attitude toward uncertainty. We further distinguish between two types of uncertainty: risk and ambiguity. In a laboratory experiment, we shock individuals’ level of confidence in their skills to causally identify the effect of overconfidence on entry into competitive markets. Moreover, we highlight the critical role of attitude toward ambiguity on entry: independent of their level of confidence, individuals exhibit ambiguity-seeking behavior when the result of the competition depends on their skills, which in turn leads to a higher level of entry. This preference for ambiguity can explain results that have previously been attributed to overconfidence.

Mots clés : Ambiguity, Overconfidence, Market Entry, Experiment, Entrepreneurship

  • SPE-2017-1188
  • Gross, Net, and New Job Creation by Entrepreneurs
  • T. ASTEBRO, Joacim TAG

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Using a dataset with over 24 million observations and more than 230,000 entries into entrepreneurship we analyze the gross (including the founders), net (excluding the founders), and new (jobs to the former unemployed or those outside the labor force) job creation by entrepreneurs two and six years after start-up. We show that the average entrepreneur does not create any jobs for any other than him/her-self, and that the average entrepreneur typically arrives from having another job so that even for him/her-self there is no new job created but simply a reshuffling of jobs from older to new firms. We further show that incorporation status is by far the most important correlate of job creation. High-ability individuals are more likely to form incorporated ventures and individuals with low ability are more likely to start sole proprietorships.

Mots clés : Entrepreneurship, incorporation, job creation, occupational choice, self-employment, stars and misfits