Discussion: Herd Behavior and Investment by Scharfstein and Stein (3)

The next step is looking when A should invest. He therefore need to determine given a certain signal what is the  probability of a high state (or low state)?  We have the use bayes rule to calculate this. 

Discussion: Herd Behavior and Investment by Scharfstein and Stein (2)

In this second post we will make a start with the model that Sharfstein and Stein made in their paper Herd Behavior and Investment.

Discussion: Herd Behavior and Investment by Scharfstein and Stein (1)

In a serie of posts I will discuss the paper of Scharfstein and Stein called “Herd Behavior and Investment” from 1990. It can be found here. http://scholar.google.com indicates that to this day this paper is cited 1708 times,  quite a number. I will try to explain the paper as best as I can. The paper examines some of the forces that can lead to herd behaviour in investments. Although this is inefficient behaviour from a social standpoint, it can be rational from the perspective of the managers who are concerned about their reputation.

The model is a game theoretical model that falls under the category of dynamic games of imperfect information. In other words, the players in the game move sequentially (one after the other) and have imperfect information about the possible outcomes.

To understand this paper and post you will need to be familiar with Bayes rule. This post will mostly be an introduction. In subsequent post the model will be introduced and solved.

Economics of Education: two stylised facts about teachers

Education is another area economist are active in. From the wide range of studies we can formulate (atleast) two stylised facts. A stylised fact is a ‘simplified presentation’ of an empirical finding . It is a finding that is supported by (almost) everyone. For teachers we can formulate the two following stylised facts.

Random stuff: Zipf's law / Rank size distribution of cities (Do-it-yourself info included!)

Zipf

When researchers analyze data sometimes remarkable patterns are found. One of these patterns is Zipf's Law, named after linguist George Kingsley Zipf (1902-1950). He found that the frequency of any word is inversely proportional to its rank in the frequency table. Specifically, he found that the most frequent word, will occur approximately twice as often as the second most frequent word, three times as often as the third most frequent word, etc. 

Thus he found that the most occuring word 'the' accounts for 7 percent of all word occurences (69.971 out of 1 million), the second most occuring word 'of' account for 3.5 percent of all word occurences etc.

Article: is there a nutrion-based poverty trap?

In this post I would like to direct the reader to a interesting article of Abhijit Banerjee and Esther Duflo, found here. It starts with the notion that their may be 1 billion hungry people in the world, which may lead to a nutrion-based poverty trap. However, is this really true?

Article: why are there still so few women at the top?

a gender difference in competitiveness ?

In the last decades the position of women has become more and more equal to men. However, at the top, men still dominate. Betrand and Hallock found in 2001 that only 2.5 percent of the top positions are held by women. Reseachers have tried to explain this by discrimination (demand side explanation)  or difference in preferences, i.e. the role of the women in the family etc. (supply side explanation). However in recent years a third explanation is suggested, one that is not often heard in the public debate. Namely, the finding that men and women differ in their competitiveness.