This introductory umbrella chapter interlinks the three essays of this dissertation thesis and explains their stance towards the economic discipline. The essays focus on two key exchange rate puzzles, which are the forward premium puzzle of Fama (1984) and the consumption real exchange rate correlation puzzle of Backus and Smith (1993). As regards the first puzzle, this thesis explains the surprisingly predictable currency returns as a hedge of macroeconomic risk. The first essay argues that the cross-sectional distribution of consumption among OECD countries explains currency returns, and the second essay highlights the Swiss franc, which is a safe haven currency and therefore particularly driven by global risk. The third essay proposes that consumer prices within the Eurozone behave conforming to standard macroeconomic theory thus attenuating the puzzle of Backus and Smith. The three essays of this thesis present reduced form empirical models and interpret results taking guidance from state of-the-art structural models. Such baseline models generally fail to precisely generate the observed patterns in the data. But being aware of this, this thesis demonstrates how powerful these simple models nevertheless are to understand empirical correlations.
Correlative evidence suggests that testosterone promotes dominance and aggression. However, causal evidence is scarce and offers mixed results. To investigate this relationship, we administered testosterone for 48h to 41 healthy young adult men in a within-subjects, double-blind placebo-controlled balanced crossover design. Subjects played the role of responders in an ultimatum game, where rejecting a low offer is costly, but serves to destroy the proposer's profit. Such action can hence be interpreted as non-physical aggression in response to social provocation. In addition, subjects completed a self-assessed mood questionnaire. As expected, self-reported aggressiveness was a key predictor of ultimatum game rejections. However, while testosterone affected subjective ratings of feeling energetic and interested, our evidence strongly suggests that testosterone had no effect on ultimatum game rejections or on aggressive mood. Our findings illustrate the importance of using causal interventions to assess correlative evidence.
We study whether employment prospects of old and young workers differ after a plant closure. Using Austrian administrative data and a combination of exact matching and fixed effects, we show that old and young workers face similarly large displacement costs in terms of employment in the long-run, but old workers lose considerably more initially and gain later. Effects on wages of displaced workers are not age-dependent. We interpret these findings in the light of a standard job search model augmented to allow for an absorbing state capturing the option of “early retirement”.
Higher levels of self-control in decision making have been linked to better psychosocial and physical health. A similar link to health outcomes has been reported for heart rate variability (HRV), a marker of physiological flexibility. Here, we sought to link these two, largely separate, research domains by testing the hypothesis that greater HRV would be associated with better dietary self-control in humans. Specifically, we examined whether total HRV at sedentary rest (measured as the standard deviation of normal-to-normal intervals, SDNN) can serve as a biomarker for the neurophysiological adaptability that putatively underlies self-controlled behavior. We found that HRV explained a significant portion of the individual variability in dietary self-control, with individuals having higher HRV being better able to down-regulate their cravings in the face of taste temptations. Furthermore, HRV was associated with activity patterns in the ventromedial prefrontal cortex (vmPFC), a key node in the brain's valuation and decision circuitry. Specifically, individuals with higher HRV showed both higher overall vmPFC BOLD activity and attenuated taste representations when presented with a dietary self-control challenge. Lastly, the behavioral and neural associations with HRV were consistent across both our stress induction and control experimental conditions. The stability of this association across experimental conditions suggests that HRV may serve as both a readily obtainable and robust biomarker for self-control ability across environmental contexts.
SIGNIFICANCE STATEMENT: Self-control is associated with better health, but behavioral and psychometric self-control measures allow only indirect associations with health outcomes and may be distorted by reporting bias. We tested whether resting heart rate variability (HRV), a physiological indicator of psychological and physical health, can predict individual differences in dietary self-control in humans. We found that higher HRV was associated with better self-control and improved predictions of choice behavior. Specifically, higher HRV was associated with more effective down-regulation of taste temptations, and with a diminished neural representation of taste temptations during self-control challenges. Our results suggest that HRV may serve as an easily acquired, non-invasive and low-cost biomarker for self-control ability.
We study production networks where firms’ products can be described by a set of input and output characteristics, and links are formed only if the output characteristics of a seller match the input characteristics of a customer. We introduce a fully endogenous network formation model with monopolistically competitive firms, in which firms exit due to exogenous shocks, or the propagation of shocks through the network. Firms can replace suppliers they have lost due to exit subject to switching costs and search frictions. This enables us to study the impact of shocks on aggregate production in an adaptive network, and we show that depending on the nature of the shocks, adaptivity can make the network more or less stable.
This paper studies fictitious play in networks of noncooperative two-player games. We show that continuous-time fictitious play converges to Nash equilibrium provided that the overall game is zero-sum. Moreover, the rate of convergence is 1/T , regardless of the size of the network. In contrast, arbitrary n-player zero-sum games do not possess the fictitious-play property. As an extension, we consider networks in which each bilateral game is strategically zero-sum, a weighted potential game, or a two-by-two game. In those cases, convergence requires either a condition on bilateral payoffs or that the underlying network structure is acyclic. The results are shown to hold also for the discrete-time variant of fictitious play, which entails a generalization of Robinson's theorem to arbitrary zero-sum networks. Applications include security games, conflict networks, and decentralized wireless channel selection.
Uncertainty in economics is generated by “nature” but also by the model we use to “produce the future”. The production of the future comprises besides the allocation of resources on different instruments (technologies, financial products) also the design of the instruments. Specialization and diversification considerations point to the advantages of targeting instruments to a rich set of possible future states. But, if a rich state space comes with unreliable probability measures, the actions based on such a set will be unreliable, too. The proliferation of financial products is a salient example. This paper argues that an appropriate model for dealing with uncertainty keeps the knowledge required by the model from its user in line with the available knowledge. In particular, it proposes to order state spaces by their “granularity” and “coverage”. Appropriate upper bounds are derived for these characteristics. A practical implication of the presented approach would be to limit financial product innovation.
