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Sparse restricted perception equilibrium
Audzei, Volha ; Slobodyan, Sergey
In this paper we study model selection under bounded rationality and the impact of monetary policy on the equilibrium choice of forecasting models. We use the concept of sparse rationality (developed recently by Gabaix, 2014), where paying attention to all possible variables is costly and agents can choose to over- or under-emphasize particular variables, even fully excluding some of them. Our main question is whether an initially mis-specified equilibrium (the restricted perceptions equilibrium, or RPE) is compatible with the equilibrium choice of sparse weights describing the allocation of attention to different variables by the agents inhabiting this RPE. In a simple New Keynesian model, we find that the agents stick to their initial mis-specified AR(1) forecasting model choice when monetary policy is less aggressive or inflation is more persistent. We also identify a region in the parameter space where the agents find it advantageous to pay attention to no variable at all.
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Price Level Targeting with Imperfect Rationality: A Heuristic Approach
Molnár, Vojtěch ; Holub, Tomáš (advisor) ; Horváth, Roman (referee)
Price Level Targeting with Imperfect Rationality: A Heuristic Approach Vojtěch Molnár Abstract The thesis compares price level targeting and inflation targeting regimes in a New Keynesian model without rational expectations hypothesis. Economic agents instead form their expectations using heuristics-they choose between a few simple rules based on their past forecasting performance. Two main specifications of the price level targeting model are examined-the agents form expectations either about price level or about inflation, which is ex ante not equivalent because of sequential nature of the model. In addition, several formulations of the forecasting rules are considered. According to the results, price level targeting is preferred in the case with expectations created about price level under the baseline calibration; but it is sensitive to some model parameters. Furthermore, when expectations are created about inflation, price level targeting over time loses credibility and leads to divergence of the economy. On the other hand, inflation targeting model functions stably. Therefore, while potential benefits of price level targeting have been confirmed under certain assumptions, the results suggest that inflation targeting constitutes significantly more robust choice for monetary policy.
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Optimal menu when agents make mistakes
Mikhalishchev, Sergei
This paper studies a welfare maximization problem with heterogeneous agents. A social planner designs a menu of choices for agents who misperceive either the properties of options or their own preferences. When agents misperceive the true properties of alternatives, it is optimal to limit a menu when the probability of a mistaken choice is moderately high. Additionally, it could be optimal to construct the menu with more distinct alternatives. However, when agents misperceive their own tastes, it is optimal to limit choice only when agents choose randomly, and to propose alternatives that are more similar when there is a greater probability of agents making a mistake.
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Selective sampling with information-storage constraints
Jehiel, P. ; Steiner, Jakub
A decision-maker acquires payoff-relevant information until she reaches her storing capacity, at\nwhich point she either terminates the decision-making and chooses an action, or discards some\ninformation. By conditioning the probability of termination on the information collected, she\ncontrols the correlation between the payoff state and her terminal action. We provide an\noptimality condition for the emerging stochastic choice. The condition highlights the benefits of\nselective memory applied to the extracted signals. The constrained-optimal choice rule exhibits (i) confirmation bias, (ii) speed-accuracy complementarity, (iii) overweighting of rare events, and (iv) salience effect.
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Computational Bounded Rationality
Černý, Jakub ; Loebl, Martin (advisor) ; Hladík, Milan (referee)
This thesis formalizes a model of bounded rationality in extensive-form games called game-playing schemata. In this model, the strategies are repre- sented by a structure consisting of a deterministic finite automaton and two computational functions. The automaton represents a structured memory of the player, while the functions represent the ability of the player to identify efficient abstractions of the game. Together, the schema is a realization of a pure strategy which can be implemented by a player in order to play a given game. The thesis shows how to construct correctly playing schema for every pure strategy in any multi-player extensive-form game with perfect recall and how to evaluate its complexity. It proves that equilibria in schemata strategies always exist and computing them is PPAD-hard. Moreover, for a class of efficiently representable strategies, computing MAXPAY-EFCE can be done in polynomial time. 1
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Application of an intuition in the managerial decision making
Hájková, Michaela ; Hrůzová, Helena (advisor) ; Pastyřík, Pavel (referee)
This Bachelor's Thesis looks into the intuition and application of intuition in managerial decision making. The theoretical part defines managerial decision making and intuition as technical categories. There are described some results of researches and examples from the real life in this thesis, that prove, that intuition plays an important role in decision making of managers. The practical part is dedicated to the interviews and questionnaires, which are discovering in which way managers feels about deciding, how do the decide, what comes before making the decision and what are the consequences, when managers decide by intuition or by analysis. This thesis tries to certify if intuition is part of managerial decision making or not and what is the role of intuition.
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Testing the Presence of Adaptive Switching Behavior in Equity Markets
Staněk, Filip ; Kukačka, Jiří (advisor) ; Švarcová, Natálie (referee)
In many financial agent based models, the concept of adaptive switching be- havior is employed as a substitute for the, elegant yet unrealistic, assumption of rational expectations. Studies estimating these models however frequently suggest that agents do not behave adaptively. To better understand the source of this discrepancy, we propose a test for the presence of switching which does not require us to specify beforehand the exact form of the switching mecha- nism nor the strategies among which agents can choose. We verify the ability of the test to detect switching by Monte Carlo simulations and then apply it to stock prices from the New York Stock Exchange. The null hypothesis of the absence of switching is strongly rejected. Furthermore, we assess robustness of this finding by applying the test individually to various sub-sets of the data-set. The switching is prevalent in all considered sub-periods and in all groups of stocks categorized by traded volume. JEL Classification G02, G12, G14, D83, D84 Keywords Bounded Rationality, Adaptive Switching, In- tensity of Choice, Market Efficiency Author's e-mail stanek.fi@gmail.com Supervisor's e-mail jiri.kukacka@fsv.cuni.cz
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The concept of libertarian paternalism in the recodification of Czech private law.
Mičková, Barbora ; Urban, Michal (advisor) ; Ondřejková, Jana (referee)
The master thesis The concept of libertarian paternalism in the recodification of Czech private law introduces a concept that works as an efficient synthesis of two different approaches to the relationship between the individual and the state: liberalism and paternalism. Libertarian paternalism deals mainly with the default system setting and setting of the recommendations and mechanism that are helpful in the decision making process of an individual as well as the whole society. The master thesis defines this concept, its main attributes and its tradition in the behavioral economics as well as its means and limits. The thesis shows how the use of this concept provides cheap and effective tools for nudging human decisions and behavior. The libertarian paternalistic approach in the law regulation is demonstrated in the new civil recodification, especially Civil Code 2012 as the fundamental act of civil law. The master thesis uses interdisciplinary approach to the topic, applying the perspectives of philosophy of law, economy, psychology and sociology.
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Irrationality in the decision- making of an individual as an economic entity in the territory of the Czech Republic
Böhm, Tomáš ; Zeman, Martin (advisor) ; Babin, Jan (referee)
The main objective of this thesis is an in-depth analysis of the decision-making process on issues of economic nature for individuals in the Czech Republic. The degree of rationality occurring in consumer behavior is evaluated based on lessons learned. The theoretical section is concerned with the economic aspect of the decision-making process, which mainly includes knowledge of neoclassical theory, whose basis is the cardinal and ordinal concept of utility maximization. Subsequently there are introduced the alternative approaches to decision making, focusing on the subjective aspects of human reasoning. Using the mutual synthesis of these approaches, the author draws a term behavioral economics, specific elements of which constitute a substantive content of the whole work. The practical section verifies the hypothesis that the decision-making contradicts the theory of rational individual conduct. Data collected through the questionnaire is subjected to analytical procedures by which the stated hypothesis was verified.
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