Re: EU
> > I don't know the evidence on the point, but you are proposing the expected > > utility model with risk neutrality. > > No, that's not it. I'm not saying people maximize expected earnings. > The functional form I'm proposing is the much weaker one that they > prefer higher expected earnings to lower expected earnings. I don't understand the difference. If I always prefer higher expected earnings, then by transitivity I will end up picking the highest, which is to say the maximum. Bill Sjostrom
Re: EU
William Sjostrom wrote: > > I don't know the evidence on the point, but you are proposing the expected > utility model with risk neutrality. No, that's not it. I'm not saying people maximize expected earnings. The functional form I'm proposing is the much weaker one that they prefer higher expected earnings to lower expected earnings. The variance of gamble 1 is p(1-p)X^2, > which means that the variance is low for low and high values of p, and high > for middle values of p. So if p is low, as p is increased, both the mean > and variance rise. From my brief foray into the finance literature (I sat > on a Ph.D. committee in finance a few years back), my recollection is that > risk neutrality works badly. > Bill Sjostrom > > + > William Sjostrom > Senior Lecturer > Department of Economics > National University of Ireland, Cork > Cork, Ireland > > +353-21-490-2091 (work) > +353-21-427-3920 (fax) > +353-21-463-4056 (home) > [EMAIL PROTECTED] > [EMAIL PROTECTED] > www.ucc.ie/~sjostrom/ > > - Original Message - > From: "Bryan Caplan" <[EMAIL PROTECTED]> > To: <[EMAIL PROTECTED]>; <[EMAIL PROTECTED]> > Sent: Monday, November 11, 2002 8:35 PM > Subject: EU > > > It's well-known that expected utility theory has a lot of problems. A > > number of alternative theories of choice under uncertainty haven't > > worked out too well either. > > > > Has anyone ever proposed a bare-bones theory of choice under > > uncertainty, basically saying only that all else equal, you become more > > likely to choose an option as it's expected value increases (without > > saying how much)? Suppose, for example, that you get to choose between > > two gambles: > > > > Gamble 1: $X with probability p. > > > > Gamble 2: $Y with probability q. > > > > Indicate preference with > or <, and probability as P(.). > > > > My bare bones theory says: > > > > 1. P(1>2) increases in p. > > 2. P(1>2) decreases in q. > > 3. P(1>2) increases in X. > > 4. P(1>2) decreases in Y. > > > > and nothing more specific. > > > > Is this inconsistent with any experimental evidence? > > -- > > Prof. Bryan Caplan > >Department of Economics George Mason University > > http://www.bcaplan.com [EMAIL PROTECTED] > > > > "He wrote a letter, but did not post it because he felt that no one > >would have understood what he wanted to say, and besides it was not > >necessary that anyone but himself should understand it." > >Leo Tolstoy, *The Cossacks* > > > > > > -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] "He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it." Leo Tolstoy, *The Cossacks*
Re: EU
Basically you are talking about expected utility theory without the independence axiom. See Mark Machina Choice Under Uncertainty: Problems Solved and Unsolved, Journal of Economic Perspectives 1 (Summer 1987) 121-154. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: EU
I don't know the evidence on the point, but you are proposing the expected utility model with risk neutrality. The variance of gamble 1 is p(1-p)X^2, which means that the variance is low for low and high values of p, and high for middle values of p. So if p is low, as p is increased, both the mean and variance rise. From my brief foray into the finance literature (I sat on a Ph.D. committee in finance a few years back), my recollection is that risk neutrality works badly. Bill Sjostrom + William Sjostrom Senior Lecturer Department of Economics National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-427-3920 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/ - Original Message - From: "Bryan Caplan" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]>; <[EMAIL PROTECTED]> Sent: Monday, November 11, 2002 8:35 PM Subject: EU > It's well-known that expected utility theory has a lot of problems. A > number of alternative theories of choice under uncertainty haven't > worked out too well either. > > Has anyone ever proposed a bare-bones theory of choice under > uncertainty, basically saying only that all else equal, you become more > likely to choose an option as it's expected value increases (without > saying how much)? Suppose, for example, that you get to choose between > two gambles: > > Gamble 1: $X with probability p. > > Gamble 2: $Y with probability q. > > Indicate preference with > or <, and probability as P(.). > > My bare bones theory says: > > 1. P(1>2) increases in p. > 2. P(1>2) decreases in q. > 3. P(1>2) increases in X. > 4. P(1>2) decreases in Y. > > and nothing more specific. > > Is this inconsistent with any experimental evidence? > -- > Prof. Bryan Caplan >Department of Economics George Mason University > http://www.bcaplan.com [EMAIL PROTECTED] > > "He wrote a letter, but did not post it because he felt that no one >would have understood what he wanted to say, and besides it was not >necessary that anyone but himself should understand it." >Leo Tolstoy, *The Cossacks* > > >
EU
It's well-known that expected utility theory has a lot of problems. A number of alternative theories of choice under uncertainty haven't worked out too well either. Has anyone ever proposed a bare-bones theory of choice under uncertainty, basically saying only that all else equal, you become more likely to choose an option as it's expected value increases (without saying how much)? Suppose, for example, that you get to choose between two gambles: Gamble 1: $X with probability p. Gamble 2: $Y with probability q. Indicate preference with > or <, and probability as P(.). My bare bones theory says: 1. P(1>2) increases in p. 2. P(1>2) decreases in q. 3. P(1>2) increases in X. 4. P(1>2) decreases in Y. and nothing more specific. Is this inconsistent with any experimental evidence? -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] "He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it." Leo Tolstoy, *The Cossacks*
EU to Swiss: end banking secrecy or else!
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2002/10/09/wswis09.xml/ EU attacks Swiss over bank reform By Ambrose Evans-Pritchard in Brussels(Filed: 09/10/2002) The European Union moved a step closer to economic warfare against the Swiss yesterday, threatening to throttle Switzerland's financial sector unless it agrees to abandon banking secrecy. Frits Bolkestein, the European tax commissioner, put forward a list of possible sanctions at a meeting of EU finance ministers in Luxembourg, including the "nuclear option" of restrictions on capital movements by Swiss investors and firms. The measures, to be finalised in December, also covered suspension of bilateral agreements. Chancellor Gordon Brown, the driving force behind the push for sanctions, said: "We are determined to move this forward. We are utterly serious about the importance of this issue." EU diplomats warned yesterday that Mr Brown was playing with fire by allowing the EU to threaten exchange controls against third countries, even if the punitive measures don't come into force until 2010. They said he is establishing a precedent that may come back to haunt the City of London, which depends on free flow of capital for its survival. The tactics are aimed at forcing Switzerland to take part in a Brussels plan to crack down on tax evasion by handing over information on all EU citizens investing money in the country. However, Swiss voters would almost certainly oppose the EU demands in a referendum, obligatory under the constitution, even if their government agreed. The Swiss financial sector accounts for 11 percent of the country's GDP. The scheme was proposed by Mr Brown as an alternative to an EU withholding tax that threatened to devastate the City of London's international bond business, and was trumpeted as a triumph of British diplomacy at the EU's Feira summit in June 2000. Without Swiss participation, the arrangement will fall apart. Austria, Luxembourg, and Belgium all refuse to give up their own banking secrecy codes unless other financial centres take part. The fear at the Treasury is that the withholding tax could be resurrected. Switzerland's entire political and business establishment was united in fury yesterday. "This is absolutely outrageous. Switzerland is not Iraq," said James Nason of the Swiss Bankers Association. 8 October 2002[Money]: Swiss fury as commissioner attacks 'lack of help on tax' 29 September 2002: Swiss see red as our man in Berne demands tax details External links Taxation and customs union - European Commission European Union Swiss Banking Organisation Government of Switzerland
