D8 - Information, Knowledge, and Uncertainty
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Risk Perceptions and Attitudes
Changes in risk perception have been used in various contexts to explain shorter-term developments in financial markets, as part of a mechanism that amplifies fluctuations in financial markets, as well as in accounts of "irrational exuberance." -
Determinants of Borrowing Limits on Credit Cards
The difference between actual borrowings and borrowing limits alone generates information asymmetry in the credit card market. -
Monetary Policy under Model and Data-Parameter Uncertainty
Policy-makers in the United States over the past 15 to 20 years seem to have been cautious in setting policy: empirical estimates of monetary policy rules such as Taylor's (1993) rule are much less aggressive than those derived from optimizing models. -
Are Distorted Beliefs Too Good to be True?
In a recent attempt to account for the equity-premium puzzle within a representative-agent model, Cecchetti, Lam, and Mark (2000) relax the assumption of rational expectations and in its place use the assumption of distorted beliefs. The author shows that the explanatory power of the distorted beliefs model is due to an inconsistency in the model and that an attempt to remove this inconsistency removes the model's explanatory power. -
Risk, Entropy, and the Transformation of Distributions
The exponential family, relative entropy, and distortion are methods of transforming probability distributions. We establish a link between those methods, focusing on the relation between relative entropy and distortion.
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